UNITEDSTATES

SECURITIESANDEXCHANGE COMMISSION

WASHINGTON,D.C. 20549

FORM10-K/A

(Mark One)

[x]

AnnualReport Pursuant to Section 13 or 15(d) of the Securities and ExchangeAct of1934 For the fiscal year ended December 31, 2008

[]

TransitionReport Pursuant to Section 13 or 15(d) of the Securities and Exchange Actof 1934 For the transition period from  __________to _________

QUALSEC

(Exactname ofregistrant as specified  in its charter)

Wyoming

 

20-5776355

(Stateor other jurisdiction of

(IRSEmployer Identi-

 incorporationor organization)

ficationNo.)

1829 East Franklin Street, Chapel Hill, NC

27514

(Addressof principal executive offices)

(ZipCode)

Issuer'stelephone number:(435) 713-0566

Securitiesregistered pursuant to Section 12(b)of the Exchange Act: None

Securitiesregisteredpursuant to Section 12(g) of the Exchange Act:  no par valuecommonstock

Check  whether the issuer (1) has 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 theregistrantwas required to file such reports) and (2) has been  subject tosuch filing requirements  for the past 90 days. Yes [  X  ]     No

Check if there is no disclosure of delinquent filersin response to Item 405 of Regulation  S-

K is not contained in this form, and no disclosure will becontained, to the best of registrant's  knowledge, in definitiveproxy orinformation statements incorporated by reference in part III of thisForm 10-KSor any amendment to this Form 10-K. [  X ]

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer or a small reportingcompany. Seedefinition of “large accelerated filer”, “acceleratedfiler” and “smallreporting company” in Rule 12b-2 of the Securities Exchange Actof 1934.

Large acceleratedfiler [ ]  Accelerated filer [ ] Non-accelerated filer [ ] Smallreportingcompany [ X ]

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

State issuer's revenues for its most recent fiscalyear: $0

The aggregate market value of the voting stock held bynon-affiliates of the registrant as of December 31, 2008 was $6,900,000based onthe last sale price of $.23.

The number of shares outstanding of the issuer'sclasses of CommonStock as of  March 24, 2009: 

CommonStock, no Par Value –

170,000,000 Shares

 

**style="font-size: 10pt; font-family: "Times","serif";">EXPLANATORYThisamendment to our Annual Report on Form 10-K is being filed solely toreviseItem 9T, amend the financial statements to correct the style=""> earnings per share for the year endedDecember 31, 2008 and provide updated certifications. That 10-Kdescribes theprior business of the Company which prior business has beendiscontinued.
 

 style="letter-spacing: -0.1pt;"> 

**style="font-size: 10pt; font-family: "Times New Roman","serif";">Item9(T). style="">   CONTROLS AND PROCEDURES**

 style="font-size: 10pt;">Our management is responsible forestablishing andmaintaining adequate internal control over financial reporting. Underthesupervision and with the participation of our management, including ourChiefExecutive Officer and Chief Financial Officer, we conducted anevaluation ofthe effectiveness of our internal control over financial reporting asofDecember 31, 2008 using the criteria established in InternalControl—IntegratedFramework issued by the Committee of Sponsoring Organizations of theTreadwayCommission (COSO). A material weakness is a deficiency, or combinationofdeficiencies, in internal control over financial reporting, such thatthere isa reasonable possibility that a material misstatement of theCompany’s annualor interim financial statements will not be prevented or detected on atimelybasis. In its assessment of the effectiveness of internal control overfinancial reporting as of December 31, 2008, we determined that ourinternalcontrols over financial reporting and disclosure controls andprocedures were noteffective. style="color: black;"> style="font-size: 10pt; color: black;">The reason for our disclosurecontrols and procedures were notdeemed effective is that style=""> this AnnualReport, when originally filed, did not include management’sreport on internalcontrols over financial reporting, but only its report on disclosurecontrols.

   
 style="font-size: 10pt;"> 
 style="font-size: 10pt;">There were no changes in our internal controloverfinancial reporting that occurred during the most recent fiscal quarterthathave materially affected, or are reasonably likely to materiallyaffect, ourinternal control over financial reporting.
 style="font-size: 10pt;"> 

****

**Item 15.**

**EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**

****

Thefinancialstatements filed herewith are listed under Item 8. No schedules arerequired.

Theseare theexhibits filed herewith:

****

Exhibit Number

Exhibit

****

3

Charter and by-laws

3.1 

Articles of Incorporation. (1)(3)

3.2

Bylaws (1) (3)

10

Material contracts 

10.1.

2006 Stock Option Plan (1).(3)

10.2.

Employment Agreement between the small business issuerand ArdenA. Kelton, PhD. (2) (3)

10.3

Employment Agreement between the issuer and JoelHand(2)(3)

10.4

Funding letter from Joel Hand. (2) (3)

10.5

Promissory Note in favor of JK Advisers Hedge Funddated March 12,2008.(4)

10.6

Promissory Note in favor of JK Advisers Hedge Funddated May 27,2008.(5)

10.7,

ConsultingAgreement between Qualsec and Dr. Arden A. Kelton.(6)

10.8

Releaseand Settlement Agreement between Qualsec and Dr. Arden A. Kelton .(6)

10.9

StockAgreement. (6)

10.10

Formof Stock Option Agreement with Kelton and Hand with schedule ofdetails.(7)

Exhibit

31, Certification of the Chief Executive and FinancialOfficerpursuant to Rule 13a-14 of the Securities and Exchange Act of 1934 asamended,as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2003.(7)

Exhibit 32, Certification of the Chief Executive andFinancialOfficer pursuant to 18 U.S.C. Section 1350 as adopted pursuant toSection 906 ofthe Sarbanes-Oxley Act of 2003. (7)

(1)

Incorporated by reference with such Exhibit as filedwith theoriginal filing of the small business issuer’s Offering Statementon Form 1-A,file number 24-10160 (the “Form 1-A”) and also filed withAmendment 2 to suchOffering Statement.

(2)

Incorporated by reference with such Exhibit as filedwith theAmendments 1 and 2 of the Form 1-A.

(3)

Incorporated by reference to the exhibit filed withtheRegistrant's registration statement on Form 10-SB, file number 0-52907..

(4)

Incorporated by reference to such document as filedwith theCompany’s Quarterly Report for the quarter ended March 31, 2008.

(5)

Incorporated by reference to such document as filedwith theCompany’s Quarterly Report for the quarter ended June 30, 2008.

(6)

Incorporated by reference to such document as filedwith a CurrentReport on Form 8-K dated August 26, 2008. 

(7)

Filed herewith.

Allother Exhibits called for by Rule 601 of Regulation S-K are notapplicable tothis filing.

style="font-size: 9pt; letter-spacing: -0.1pt;">SIGNATURES
 style="font-size: 9pt; letter-spacing: -0.1pt;"> 
 style="font-size: 9pt; letter-spacing: -0.1pt;">            Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of1934, the Registrant has duly caused this report to be signed on itsbehalf bythe undersigned thereunto duly authorized. class="MsoNormal" style="margin-right: 0.25in; line-height: 12pt;"> style="font-size: 9pt; letter-spacing: -0.1pt;"> 

 style="font-size: 9pt; letter-spacing: -0.1pt;">  style="">                                                                                                              QUALSECp>
 style="font-size: 9pt; letter-spacing: -0.1pt;">  font-family: "Times New Roman","serif"; letter-spacing: -0.1pt;">Date: style="">        February5, 2010 style="">                                                    serif";">By: style="">     /s/ Edward Bukstel style="">                      

 style="font-size: 9pt; font-family: "Times New Roman","serif";"> style="">                                                                                                   style="letter-spacing: -0.1pt;">President and ChiefFinancial  style="font-size: 9pt; letter-spacing: -0.1pt;">Officer 

 Pursuant to therequirements ofthe Securities Exchange Act of 1934, this report has been signed belowby thefollowing persons on behalf of the style=""> Registrantand in the capacities and on thedate indicated.

 style="font-size: 9pt; letter-spacing: -0.1pt;"> 
   style="">                                                                                                              QUALSEC

 style="font-size: 9pt; letter-spacing: -0.1pt;">  style="font-size: 9pt; font-family: "Times New Roman","serif"; letter-spacing: -0.1pt;">Date: style="">        February5, 2010 style="">     style="">                                                                style="font-size: 9pt; font-family: "Times New Roman","serif";">By: style="">     /s/ Edward Bukstel style="">                      
 style="font-size: 9pt; font-family: "Times New Roman","serif";"> style="">                                                                                                                style="letter-spacing: -0.1pt;">President and ChiefFinancial  style="font-size: 9pt; letter-spacing: -0.1pt;">style="">Officer(chief financial officer>=

 style="font-size: 9pt; letter-spacing: -0.1pt;">                                                                                                              andofficer) and Director

 style="font-size: 9pt; letter-spacing: -0.1pt;"> 

  
 style="font-size: 9pt; font-family: "Times New Roman","serif"; letter-spacing: -0.1pt;">Date: style="">        February5, 2010     ="">                                                                style="font-size: 9pt; font-family: "Times New Roman","serif";">By: style="">     /s/ Dr. Richard Seelig style="">                  
 style="font-size: 9pt; font-family: "Times New Roman","serif";"> style="">                                                                                                               Director
 style="font-size: 9pt; letter-spacing: -0.1pt;"> 
****

**THE BLACKWING GROUP, LLC**

**18921G E VALLEY VIEW PARKWAY #325**

**INDEPENDENCE, MO 64055**

**816-813-0098**

****

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

Qualsec

1829East Franklin Street

ChapelHill, NC 27514

We have audited the accompanying balance sheets ofQualsecas of December 31, 2008, and the related statements of operations,stockholders’ equity, and cash flows for the period then ended. These financial statements are the responsibility of theCompany’smanagement.  Our responsibility is to express an opinion on thesefinancialstatements based on our audits.

We conducted our audit in accordance with thestandards of thePublic Company Accounting Oversight Board (United States).  Thosestandardsrequire that we plan and perform the audit to obtain reasonableassurance aboutwhether the financial statements are free of material misstatement. TheCompany is not required to have, nor were we engaged to perform, anaudit of itsinternal control over financial reporting. Our audit includedconsideration ofinternal control over financial reporting as a basis for designingauditprocedures that are appropriate in the circumstances, but not for thepurpose ofexpressing an opinion on the effectiveness of the Company’sinternal controlover financial reporting. Accordingly, we express no such opinion. Anaudit alsoincludes examining, on a test basis, evidence supporting the amountsanddisclosures in the financial statements, assessing the accountingprinciplesused and significant estimates made by management, as well asevaluating theoverall financial statement presentation.  We believe that ourauditprovides a reasonable basis for our opinion.

In our opinion, such financial statements presentfairly, in allmaterial respects, the financial position of Qualsec as of December 31,2008, and the results of its operations, changes in stockholders’equity and its cash flows for the period then ended in conformity withaccounting principles generally accepted in the United States ofAmerica.

The accompanying financial statements have beenprepared assumingthat the Company will continue as a going concern. As discussed in NoteR to thefinancial statements, the Company faces competition from existingcompanies withconsiderably more financial resources and business connections. Theseconditionsraise substantial doubt about its ability to continue as a goingconcern.Management's plans regarding those matters also are described in NoteK. Thefinancial statements do not include any adjustments that might resultfrom theoutcome of this uncertainty.         

TheBlackwing Group, LLC

Independence,Missouri

March20, 2009

****

12

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

Tothe Board of Directors and Stockholders

QualSec

NorthLogan, Utah

We have audited the accompanying balance sheets ofQualSec (ADevelopment Stage Company) as of December 31, 2007 and 2006, and therelatedstatements of operations, stockholders’ equity, and cash flowsfor the yearsthen ended and from inception (October 18, 2006) through December 31,2007.These financial statements are the responsibility of theCompany’s management.Our responsibility is to express an opinion on these financialstatements basedon our audits. 

Weconductedour audits in accordance with the standards of the Public CompanyAccountingOversight Board (United States). Those standards require that we planandperform the audit to obtain reasonable assurance about whether thefinancialstatements are free of material misstatement. An audit includesexamining, on atest basis, evidence supporting the amounts and disclosures in thefinancialstatements. An audit also includes assessing the accounting principlesused andsignificant estimates made by management, as well as evaluating theoverallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

In our opinion, the financial statements referred toabove presentfairly, in all material respects, the financial position of QualSec asofDecember 31, 2007 and 2006, and the results of its operations and cashflows forthe years then ended and from inception (October 18, 2006) throughDecember 31,2007 in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have beenprepared assumingthe Company will continue as a going concern. As discussed in Note 6 tothefinancial statements, the Company has suffered recurring losses fromoperations,which raise substantial doubt about its ability to continue as a goingconcern.Management’s plans in regard to these matters are also describedin Note 6. Thefinancial statements do not include any adjustments that might resultfrom theoutcome of this uncertainty.

De Joya Griffith & Company, LLC

/s/ De Joya Griffith & Company, LLC

Henderson, NV

March18, 2008 

13

QUALSEC

*[ADevelopment Stage Company]*

BALANCESHEETS
  
as of
 
as of
   
31-Dec-08
 
31-Dec-07
  
CurrentAssets
     
          Cashand cash equivalents
 
 $                         150,477      
 
 $              34,724      
 
               TotalCurrent Assets
 
                             150,477      
 
                  34,724      
       
Propertyand equipment, net
 
                                 5,061      
 
                    2,942      
 
Otherassets
 
  
   
          Technologyrights
 
                                        1      
 
                           1      
   
 
 
 
 
TotalProperty and Equipment
 
                                 5,061      
 
                    2,943      
   
 
 
 
 
               TotalAssets
 
 $                         155,539      
 
 $              37,667      
   
 
 
 
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
      
CurrentLiabilities
     
          Accountspayable and accrued liabilities

 $                           68,616      
 
 $              18,612      
 
          Deferredcompensation payable - related party

                             467,000      
 
                247,001      
 
          Convertiblenote payable - related party

                             136,974      
 
                200,000      
 
          Accruedinterest - related party

                                 6,653      
 
                  13,833      
   
  
 
 
 
               TotalCurrent Liabilities
 
                             679,244      
 
                479,446      
   
 
 
 
 
               TotalLiabilities
 
                             679,244      
 
                479,446      
       
Stockholders'deficit (Note B)
     
Preferredstock, no par value; unlimited number of
    
  sharesauthorized; no shares issued and outstanding

                                         -      
 
                           -      
       
Commonstock, no par value; unlimited number of
    
  sharesauthorized; 170,000,000 and 151,450,000
    
  sharesissued and outstanding
 
                             298,902      
 
                113,402      
       
Additionalpaid in capital
 
                             229,988      
 
                           -      
   
  
   
RetainedEarnings (Accumulated Deficit) 

                        (1,052,595)
 
              (555,181)
   
  
 
 
 
               Totalstockholders' deficit

                           (523,704)
 
              (441,779)
   
 
 
 
 
Totalliabilities and stockholders' deficit

 $                         155,540      
 
 $              37,667      
 
 

 

 
 
 
 
The accompanying notes are an integral part of thefinancialstatements.

QUALSEC

[*A Development Stage Company*]

INCOME STATEMENTS
      
Year 
 
Year
 
FromInception
      
Ended 
 
Ended
 
onOctober 18,2006
      
"Dec.31
 
"Dec.31
 
ThroughDecember
      
2008
 
2007
 
31,2008

Total Income
    
 $            -  
 
 $            -  
 
 $                      -  
           
Total Cost of Sales
   
                -  
 
                -  
 
                          -  
           
Gross Margin
    
                -  
 
                -  
 
                          -  
           
Expenses
          
General andAdministrative
 
       103,164      
 
         44,791      
 
        153,840      
 
Compensation Expense
  
       275,454      
 
       324,232      
 
                     626,126      
 
Research andDevelopment
 
       110,500      
 
       140,000      
 
                  250,500      

Total Expenses
   
       489,118      
 
       509,023      
 
               1,030,468      
           
Net Operating Loss
   
      (489,118)
 
      (509,023)
 
              (1,030,468)
           
Other Income (Expense)
         
Interest Expense -RelatedParty
 
          (8,295)
 
        (13,833)
 
                  (22,127)

Total Other Income(Expense)
 
          (8,295)
 
        (13,833)
 
                  (22,127)
           
Net Income (Loss)
   
 $ 497,413)
 
 $ (522,856)
 
$  (1,052,595)
           
Per Share Information:
                   
Net Income (Loss) pershare
  
 $  (0.00)
 
 $   (0.00)
             
Basic weightedaverage number 
       
common stock sharesoutstanding
 
 170,000,000 
 
 145,920,137 
  
The accompanying notes are an integral part of thefinancialstatements.

****

**Qualsec**

*[A Development Stage Company]*

**STATEMENT OF STOCKHOLDERS' DEFICIT**

**FROM INCEPTION (OCTOBER 18, 2006) THROUGH DECEMBER31,2008**
             
**Addition-al**
   
**Preferred Stock**

**Common Stock**

**Paid-In**

** Accumulated**

**Total**
 
** Shares**

**Amt.**

** Shares**

**Amount**

**Capital**

** Deficit**

**Capital**
        
Balance,October 18, 2006

           -      

 $       - 

                  -      

 $          - 

 $           - 

 $                 -      

 $         - 
        
  October18, 2006
       
   Stockissued for 
       
   Technologyrights

           -      

        -  

 140,000,000      

             1      

            -  

                     -      

            1      

Netloss

           -      

        -  

                  -      

           -  

            -  

           (32,325)

   (32,325)
        
Balance,December 31, 2006

           -      

 $       - 

 140,000,000      

 $         1 

 $           - 

 $        (32,325)

 $(32,324)
        
September2007, 

Issuanceof stock for cash

           -      

        -  

   11,450,000      

   113,401      

            -  

                     -      

  113,401      

Netloss

           -      

        -  

                  -      

           -  

            -  

          (522,856)

 (522,856)
        
Balance,December 31, 2007

           -      

        -  

 151,450,000      

 $113,402      

            -  

          (555,181)

 (441,779)
        
January2008, stock issued for cash

           -      

        -  

   18,550,000      

   185,500      
 
                     -      

  185,500      
        
June2008, stock options issued

           -      

        -  

                  -      

           -  

      30,000      

                     -      

    30,000      
        
September2008 Reclassification of members'
       
contributionto additional paid-in capital

           -      

        -  

                  -      

           -  

    199,988      

                     -      

  199,988      
        
Netloss

           -      

        -  

                  -      

           -  

            -  

          (497,413)

 (497,413)
        
Balance,December 31, 2008

           -      

        -  

 170,000,000      

   298,902      

    229,988      

       (1,052,595)

 (523,704)

Theaccompanying notes are an integral part of the financial statements.

**QUALSEC**

**(ADEVELOPMENT STAGE COMPANY)**

**STATEMENTOF CASH FLOWS**

FromInception

Forthe Year Ended

(Oct.18, 2006

December31,

to

2008

2007

Dec.31, 2008

CASH FLOWS FROMOPERATINGACTIVITIES

NetIncome (Loss)

$

(497,413)

$

(522,856)

$

(1,052,595)

Adjustments toreconcilenet income to net cash provided

By operatingactivities

Depreciation

1,911

744

2,706

(Increase)decrease in:

Accountsreceivable

--

--

--

PrepaidExpenses

--

500

--

Increase(decrease) in:

AccountsPayable and Accrued Liabilities

50,004

18,107

68,617

AccruedInterest – Related Party

(7,180)

13,833

6,654

SalesTax Payable

--

--

--

DeferredCompensation Payable – Related Party

220,000

227,053

467,001

NetCashProvided (Used) By

  OperatingActivities

(232,678)

(262,619)

(507,617)

CASH FLOWS FROMINVESTINGACTIVITIES

FixedAsset Additions

(4,030)

(1,542)

(7,767)

NetCash (Used) By Investing Activities

(4,030)

(1,542)

(7,767)

CASH FLOWS FROMFINANCINGACTIVITIES

ProceedsFrom Convertible Note Payable – Related Party

130,000

120,000

330,000

Paymentson Convertible Note Payable – Related Party

(184,500)

--

(184,500)

ProceedsFrom Loan – Related Party

--

--

3,000

Paymentson Loan – Related Party

(8,526)

--

(11,526)

StockIssued for Services

30,000

--

30,000

StockIssued for Cash

385,488

113,402

498,888

CapitalContributions

--

--

--

NetCash (Used) By Financing Activities

352,461

233,402

665,861

NETINCREASE (DECREASE) IN CASH

115,753

(30,760)

150,477

CASHAT BEGINNING OF PERIOD

34,724

65,484

--

CASHAT END OF PERIOD

$

150,477

$

34,724

$

150,477

**SupplementalDisclosureof Cash Flow Information:**

Cash paid duringthe periodfor:

Interest

Income taxes

**SupplementalSchedule ofNon-cash Investing and**

FinancingActivities:

Issuanceof stock for technology right

$

1

$

1

Offeringcosts

$

1,099

$

1,099

The accompanyingnotes arean integral part to the financial statements.

****

14

****

**QUALSEC**

**(ADevelopment Stage Company)**
****
**NOTESTO FINANCIAL STATEMENTS**

**DECEMBER31, 2008**

**NOTE 1 -SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES**

A summary of significant accounting policies ofQualSec (ADevelopment Stage Company) (the Company) is presented to assist inunderstandingthe Company’s financial statements. The accounting policiespresented in thesefootnotes conform to accounting principles generally accepted in theUnitedStates of America and have been consistently applied in the preparationof theaccompanying financial statements. These financial statements and notesarerepresentations of the Company’s management who are responsiblefor theirintegrity and objectivity. The Company has not realized revenues fromitsplanned principal business purpose and is considered to be in itsdevelopmentstate in accordance with SFAS 7, “*Accounting and Reporting byDevelopmentState Enterprises.”*

**Organization –** QualSec (the“Company”) was organized underthe laws of the State of Wyoming on October 18, 2006. The Company isdevelopingan electronic olfactory device.  The Company has not yet generatedanyrevenues from planned principal operations and is considered adevelopment stagecompany as defined in Statement of Financial Accounting Standards No.7. The Company has, at the present time, not paid any dividends andanydividends that may be paid in the future will depend upon the financialrequirements of the Company and other relevant factors.

**Basis of Presentation**- The preparation offinancialstatements in conformity with accounting principles generally acceptedin theUnited States of America requires management to make estimates andassumptionsthat effect the reported amounts of assets and liabilities at the dateof thefinancial statements and the reported amounts of revenue and expensesduring thereported period. Actual results could differ from those estimates.Managementfurther acknowledges that it is solely responsible for adopting soundaccountingpractices, establishing and maintaining a system of internal accountingcontroland preventing and detecting fraud. The Company’s system ofinternal accountingcontrol is designed to assure, among other items, that (1) recordedtransactionsare valid; (2) all valid transactions are recorded and (3) transactionsarerecorded in the period in a timely manner to produce financialstatements whichpresent fairly the financial condition, 

**Fiscal Year -** The Company’s fiscalyear-end is December31.

**Cash and Cash Equivalents -** The Companyconsiders allhighly liquid investments purchased with a maturity of three months orless tobe cash equivalents.

****

**Advertising Costs -**Advertising costs arecharged tooperations when incurred.  The Company has not yet incurred anyadvertisingcosts.

****

**Stock-Based Compensation****-** The Companyhas onestock-based employee compensation plan [*See Note 2*].  TheCompanyaccounts for its plan under the recognition and measurement principlesof SFAS123(R), “Share Based Payment” and related Interpretations. The Company hasnot issued any options or warrants as of June September 30, 2008.

****

**Offering Costs –** Costs of issuing stockare deducted fromthe proceeds of the issue. These are costs of the Company’sRegulation AOffering. For the year ended December 31, 2007, $1,099 in costsassociated withthe Company’s Regulation A Offering were deducted from theproceeds.  Therewere no additional offering costs for the amounts raised as of December31,2008.

****

**Loss Per Share -** The Company computes net lossper share inaccordance with SFAS No. 128, “Earnings per Share” (SFAS128) and SEC StaffAccounting Bulletin No. 98 (SAB 98). Under the provisions of SFAS 128and SAB98, basic net loss per share is computed by dividing the net lossavailable tocommon stockholders for the period by the weighted average number ofshares ofcommon stock outstanding during the period. The calculation of dilutednet lossper share gives effect to common stock equivalents; however, potentialcommonshares are excluded if their effect is anti-dilutive. For the periodfromOctober 18, 2006 (Date of inception) through December 31, 2008, theCompany hadno potentially dilutive securities. 

****

****

**QUALSEC**

** (ADevelopment Stage Company)**
****
**NOTESTO FINANCIAL STATEMENTS**

**DECEMBER31, 2008**

**NOTE 1 -SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES (continued)**

**Income Taxes -**The Company accounts for incometaxes inaccordance with Statement of Financial Accounting Standards No. 109“Accountingfor Income Taxes” [*See Note 4*].

****

**Accounting Estimates****-** The preparationof financialstatements in conformity with generally accepted accounting principlesin theUnited States of America requires management to make estimates andassumptionsthat affect the reported amounts of assets and liabilities, thedisclosures ofcontingent assets and liabilities at the date of the financialstatements, andthe reported amount of revenues and expenses during the reportedperiod. Actual results could differ from those estimated.

**Financial Instruments -**Fair value estimatesdiscussedherein are based upon certain market assumptions and pertinentinformationavailable to management as of December 31, 2008. The respectivecarrying valueof certain on-balance-sheet financial instruments approximate theirfair values.These financial instruments include cash, accounts payable, accruedexpenses andnotes payable. Fair values were assumed to approximate carrying valuesfor thesefinancial instruments because they are short term in nature and theircarryingamounts approximate fair values.

**Accrued Vacation Liabilities** – Each ofthe two employeesare entitled to three week’s paid vacation per year.  Theamount of accruedvacation is accrued as a liability pursuant to FAS No. 43,“Accounting forCompensated Absences”. As of December 31, 2008, the amount ofaccrued vacationwas $34,800. 

**Recently Enacted Accounting Standards –**InSeptember 2006,the FASB issued Statement No. 157, “Fair ValueMeasurements” (FAS 157), whichdefines fair value, establishes a framework for measuring fair value,andexpands disclosures about fair value measurements. The provisions ofFAS 157became effective as of the beginning of our 2008 fiscal year. Theadoption ofFAS 157 did not have a significant impact on our financial statements.

In September 2006, the Securities and ExchangeCommission issuedStaff Accounting Bulletin No. 108, “Considering the Effects ofPrior YearMisstatements when Quantifying Misstatements in Current Year FinancialStatements” (SAB 108), which addresses how to quantify the effectof financialstatement errors. The provisions of SAB 108 became effective as of theend ofour 2007 fiscal year. The adoption of SAB 108 did not have asignificant impacton our financial statements.

In February 2007, the FASB issued Statement No. 159,“The FairValue Option for Financial Assets and Financial Liabilities, includinganamendment of FASB Statement No. 115” (FAS 159). FAS 159 permitscompanies tochoose to measure many financial instruments and certain other items atfairvalue that are not currently required to be measured at fair value andestablishes presentation and disclosure requirements designed tofacilitatecomparison between companies that choose different measurementattributes forsimilar types of assets and liabilities. The provisions of FAS 159becomeeffective as of the beginning of our 2009 fiscal year. We are currentlyevaluating the impact that FAS 159 will have on our financialstatements.

In December 2007, the FASB issued SFAS 160,“NoncontrollingInterests in Consolidated Financial Statements, an amendment of ARB No.51”which applies to all entities that prepare consolidated financialstatements,except not-for-profit organizations, but will affect only thoseentities thathave an outstanding noncontrolling interest in one or more subsidiariesor thatdeconsolidate a subsidiary. The statement is effective for annualperiodsbeginning after December 15, 2008.

In March 2008, the FASB issued SFAS No. 161,“Disclosuresabout Derivative Instruments and Hedging Activities – anamendment of FASBStatement No. 133,” (SFAS “161”) as amended andinterpreted, which requiresenhanced disclosures about an entity’s derivative and hedgingactivities andthereby improves the transparency of financial reporting. Disclosingthe fairvalues of derivative instruments and their gains and losses in atabular formatprovides a more complete picture of the location in an entity’sfinancialstatements of both the derivative positions existing at period end andtheeffect of using derivatives during the reporting period. Entities arerequiredto provide enhanced disclosures about (a) how and why an entity usesderivativeinstruments, (b) how derivative instruments and related hedged itemsareaccounted for under Statement 133 and its related interpretations, and(c) howderivative instruments and related hedged items affect anentity’s financialposition, financial performance, and cash flows. SFAS No. 161 iseffective forfinancial statements issued for fiscal years and interim periodsbeginning afterNovember 15, 2008. Early adoption is permitted. We are currentlyevaluating theimpact that FAS 161 will have on our financial statements.

**QUALSEC**

** (ADevelopment Stage Company)**
****
**NOTESTO FINANCIAL STATEMENTS**

**DECEMBER31, 2008**

**NOTE 1 -SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES (continued)**

**Recently Enacted Accounting Standards (continued) –**In May 2008, the FASB issued SFAS No. 163, “Accounting forFinancialGuarantee Insurance Contracts – an interpretation of FASBStatement No. 60.” SFAS 163 requires that an insurance enterprise recognize a claimliabilityprior to an event of default (insured event) when there is evidencethat creditdeterioration has occurred in an insured financial obligation. ThisStatement also clarifies how Statement 60 applies to financialguaranteeinsurance contracts, including the recognition and measurement to beused toaccount for premium revenue and claim liabilities. Those clarificationswillincrease comparability in financial reporting of financial guaranteeinsurancecontracts by insurance enterprises. This Statement requires expandeddisclosuresabout financial guarantee insurance contracts. The accounting anddisclosurerequirements of the Statement will improve the quality of informationprovidedto users of financial statements.  SFAS 163 will be effective forfinancialstatements issued for fiscal years beginning after December 15, 2008. TheCompany does not expect the adoption of SFAS 163 will have a materialimpact onits financial condition or results of operation.

****

**NOTE 2 - CAPITAL STOCK**

****

**Common Stock -**The Company has authorized anunlimitednumber of shares of no par value common stock and preferred stock. InOctober 2006, in connection with its organization, the Company issued140,000,000 shares of common stock to two individuals who areofficers/shareholders of the Company.  The shares were issued fortechnology rights valued at $1.  In July and September 2007, theCompanysold 11,450,000 shares in its Regulation A placement at a price of $.01pershare.  Net proceeds were $113,401.  In January 2008, theCompany soldthe remaining 18,550,000 shares requested in the offering for proceedsof$185,500.

In October, 2008, the Company sold 109,400,000 sharesof commonstock to an investor group for $200,000 cash.  The two officersanddirectors each cancelled 54,700,000 shares in connection with thefinancing;therefore the total shares outstanding were unchanged.

**Stock Option Plan****-** In October 2006,the Board ofDirectors adopted and the stockholders at that time approved the 2006StockOption Plan (“the Plan”).  The Plan provides for thegranting of qualifiedand non-qualified stock options to purchase up to 20,000,000 shares ofcommonstock to directors, officers, advisors and employees of the Company aswell asto employees of companies that do business with the Company. Awards underthe plan will be granted as determined by the Stock Option Committee oftheBoard of Directors.  The Plan limits awards to directors, officersandemployees to $100,000 of compensation per year.  The options willexpireafter 10 years or 5 years if the option holder owns at least 10% of thecommonstock of the Company.  The exercise price of a non-qualifiedoption must beat least 85% of the market price.  The exercise price of aqualified optionmust be at least equal to the market price or 110% of the market priceif theoption holder owns at least 10% of the common stock of the Company. 

At December 31, 2008, fully vested awards consistingof options topurchase 4,000,000 shares at a price of $.01 per share were granted. Inaccordance with SFAS No. 123 (R), the Company recognized the entirefair valueof the options in the statement of operations since they vestedimmediately.Fair value of $30,000 was determined using the Black Scholes optionpricingmodel based on the following assumptions: risk free interest rate of2.75%, nodividend yield, volatility of 82% and expected life of the options of 5years,which are due to expire May 1, 2013.  Total awards available to begrantedfrom the Plan amounted to 16,000,000 shares.

15

**QUALSEC**

** (ADevelopment Stage Company)**
****
**NOTESTO FINANCIAL STATEMENTS**

**DECEMBER31, 2008**

**NOTE3 - EQUIPMENT**

Furnitureand equipment consists of the following at December 31, 2008 and 2007:
 
**2008**

**2007**

Equipment

 $  5,461 

 $    2,195 

Furniture

     2,306      

       1,542      

Less:Accumulated depreciation

    (2,706)

         (795)
 
 $  5,062 

 $    2,942 

Furnitureand equipment are depreciated on a straight line basis over theirestimateduseful life; 3 years for all equipment and 5 years for the furnitureacquired todate.

Depreciationexpense for the twelve months ended December 31, 2008 and 2007 was$1,911 and$744, respectively.

**NOTE 4 - INCOME TAXES**

As of December 31, 2008 and 2007, the Company had anet operatingloss carryforwards of approximately $1,052,600 and $555,200 which maybe appliedagainst future taxable income and which begins to expire in 2027.Components ofnet deferred tax assets, including a valuation allowance, are asfollows atDecember 31:
 
**2008**

**2007**

Deferredtax assets:
  
    Netoperating loss carryforward

 $                357,881      

 $                187,402      

    Accruedliabilities

                   170,610      

                     83,980      

    Depreciation

                          210      

                          253      
 
                   528,701      

                   271,635      
   
Less:valuation allowance

                   528,701      

                   271,635      
   
Netdeferred tax assets:

 $                          -      

 $                          -      

The valuation allowance for deferred tax assets as ofDecember 31,2008 and 2007 was $528,701 and $271,635, respectively.  Inassessing therecovery of the deferred tax assets, management considers whether it ismorelikely than not that some portion or all of the deferred tax assetswill not berealized. The amount of and ultimate realization of the benefits fromtheoperating loss carryforwards for income tax purposes is dependent, inpart, uponthe tax laws in effect, the future earnings of the Company, and otherfutureevents, the effects of which cannot be determined.  Because of theuncertainty surrounding the realization of the net deferred tax assets,theCompany has established a valuation allowance equal to their tax effectand,therefore, no deferred tax asset has been recognized as of December 31,2008 and2007.

The Financial Accounting Standards Board has publishedFASBInterpretation 48 (FIN 48), “Accounting for Uncertainty in IncomeTaxes,” toaddress the non-comparability in reporting tax assets and liabilitiesresultingfrom a lack of specific guidance in FASB Statement of FinancialAccountingStandards No. 109 (SFAS 109), “Accounting for IncomeTaxes,” on the uncertaintyin income taxes recognized in an enterprise’s financialstatements. Specifically, FIN 48 prescribes (a) a consistent recognitionthreshold and(b) a measurement attribute for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a taxreturn, andprovides related guidance on derecognition, classification, interestandpenalties, accounting interim periods, disclosure and transition. To theextent interest and penalties would be assessed by taxing authoritiesof anyunderpayment of income taxes, such amounts would be accrued andclassified as acomponent of income tax expenses on the  statement of operations.FIN 48will apply to fiscal years beginning after December 15, 2006, withearlieradoption permitted.  The Company has completed its evaluation oftheeffects of FIN 48 and has concluded that the adoption of FIN 48 did notimpactthe financial statements for the period ended December 31, 2008.

**QUALSEC**

** (ADevelopment Stage Company)**
****
**NOTESTO FINANCIAL STATEMENTS**

**DECEMBER31, 2008**

**NOTE 5 – RELATED PARTY TRANSACTIONS**

An officer and shareholder of the Company advanced$3,000 to theCompany in November 2006 which was repaid in the same month. The sameofficerand shareholder loaned $80,000 to the Company on an interest free basisinNovember 2006, and advanced an additional $120,000 during the yearendedDecember 31, 2007. The loan is represented by a promissory note whichis dueupon completion of the offering of common stock, which closed inJanuary 2008. The Company repaid $184,500 of the Note in January 2008, and$8,526 inDecember 2008, leaving a balance of $6,974 as of December 31, 2008. Theofficer/shareholder is entitled to receive interest of 8% per annum onthe notecommencing on July 1, 2007,  and, to the extent such note isunpaid, itshall be convertible into common stock at 75% of the initial tradingprice ofCompany common stock.   Interest of $0 (zero) was accrued andunpaidon the note as of December 31, 2008.

We borrowed $30,000 from an investment fund on March12, 2008under a convertible promissory note due December 31, 2008, and bearing8%interest. The note is convertible into common stock at $.01 per share.Anadditional $100,000 was loaned on the same terms on May 27, 2008. Thefund iscontrolled by the brother of an officer/director.  Interest of$6,653 wasaccrued and unpaid on the notes as of December 31, 2008.

The Company determined that the convertible notes donot have abeneficial conversion feature since the market price of the stock isapproximately $.01 per share; the conversion price is the same. 

Pursuant to three-year employment contracts datedNovember 27,2006, the officers are both entitled to compensation of $150,000 perannum;however, the compensation payable to Mr. Hand is deferred until suchtime as theCompany has cash available for paying such compensation, and Dr. Keltonisdeferring $78,000 ($6,500 per month) of such annual compensation on thesamebasis.  In March 2008, Dr. Kelton agreed to defer an additional$4,000 permonth in salary. On September 1, 2008, Dr. Kelton agreed to defer allof hissalary.  In September 2008, Dr. Kelton entered into a settlementagreementterminating his employment agreement.  As of December 31, 2008,the totaldeferred compensation was $467,001, including $32,866 for accruedpayroll taxesrelated to the deferred compensation.

**NOTE 6 - GOING CONCERN**

The accompanying financial statements have beenprepared inconformity with generally accepted accounting principles in the UnitedStates ofAmerica, which contemplate continuation of the Company as a goingconcern. However, the Company was only recently formed and has not yetbeensuccessful in establishing profitable operations.  These factorsraisesubstantial doubt about the ability of the Company to continue as agoingconcern.  In this regard, management is proposing to raise anynecessaryadditional funds not provided by operations through loans or throughadditionalsales of their common stock.  There is no assurance that theCompany willbe successful in raising this additional capital or in achievingprofitableoperations.  The financial statements do not include anyadjustmentsrelating to the recoverability and classification of recorded assetamounts oramounts and classification of liabilities that might result from thisuncertainty. 

The Company has experienced losses from operations.For the twelvemonths ended December 31, 2008 and 2007, the Company incurred netlosses of$497,413 and $522,856, respectively.  Additionally, the Companyhas anaggregate accumulated deficit from Inception (October 18, 2006) throughDecember31, 2008 of $1,052,595.

**NOTE 7 – LITIGATION**

As of December 31, 2008, the Company is not aware ofany currentor pending litigation which may affect the Company’s operations. 

16

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