UNITED
STATES

SECURITIES AND
EXCHANGE COMMISSION

WASHINGTON,
D.C. 20549

FORM 10-K/A



(Mark One)

[x]

Annual
Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of
1934 For the fiscal year ended December 31, 2008



[
]

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





QUALSEC

(Exact name of
registrant as specified  in its charter)



Wyoming



20-5776355

(State
or other jurisdiction of

(IRS
Employer Identi-

incorporation
or organization)

fication
No.)



1829 East Franklin Street, Chapel Hill, NC

27514

(Address
of principal executive offices)

(Zip
Code)



Issuer's telephone number:
(435) 713-0566

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

Securities registered
pursuant to Section 12(g) of the Exchange Act:  no par value common
stock



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 the registrant
was required to file such reports) and (2) has been  subject to such filing
 requirements  for the past 90 days. Yes [  X  ]
     No



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

K is not contained in this form, and no disclosure  will be
contained, to the best of registrant's  knowledge, in definitive proxy or
information statements incorporated by reference in part III of this Form 10-KS
or any amendment to this Form 10-K. [  X ]

Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer or a small reporting company. See
definition of large accelerated filer, accelerated filer and small
reporting company in Rule 12b-2 of the Securities Exchange Act of 1934.

Large accelerated filer [ ]
  Accelerated filer [ ] Non-accelerated filer [ ] Small reporting
company [ X ]





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



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



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



The number of shares outstanding of the issuer's classes of Common
Stock as of  March 24, 2009:



Common
Stock, no Par Value 

170,000,000
 Shares







0



SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

We have made
forward-looking statements in this Annual Report on Form 10-K, including in
the sections entitled "Description of Business," "Risk Factors,"  and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," that are based on our management's beliefs and assumptions and on
information currently available to our management. Forward-looking statements
include, among others, the information concerning our possible or assumed future
results of operations, business strategies, financing plans, competitive
position, potential growth opportunities, potential operating performance
improvements, the effects of competition, and the effects of future legislation
or regulations. Forward-looking statements include all statements that are not
historical facts and can be identified by the use of forward-looking terminology
such as the words "believe," "expect," "plan," "intend," "anticipate,"
"estimate," "predict," "potential," "continue," "may," "should," or the negative
of these terms or similar expressions.

Forward-looking
statements involve risks, uncertainties, and assumptions. Actual results may
differ materially from those expressed in these forward-looking statements. You
should not put undue reliance on any forward-looking statements. We do not have
any intention or obligation to update forward-looking statements after we file
this report except as required by law.



1



PART
I



Item 1.

DESCRIPTION OF BUSINESS



When used in this Form 10-K, the words "expects," "anticipates,"
"estimates" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risks and uncertainties, including
those set forth below under "Risks and Uncertainties," that could cause actual
results to differ materially from those projected. These forward-looking
statements speak only as of the date hereof. QualSec expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any statement is based. This discussion should be read
together with the financial statements and other financial information included
in this Form 10-K.





Background



QualSec,
a Wyoming corporation (the Company or QualSec) was incorporated on October
18, 2006 to develop and market an electronic olfactory device.  The
executive offices of the Company are located at 1829 East Franklin Street,
Chapel Hill, NC 27514.  Our telephone number is (435) 713-0566.



Plan of
Operation  General



QualSec intends to develop and market an electronic olfactory
device. We believe we can design and manufacture (or cause to be manufactured on
a contract basis) this device to be portable to the extent it will be handheld.
A working prototype has been developed.  The electronic olfactory device
detects minute quantities of chemical compounds in minutes and provides an
electronic report to the user in real time.



The product consists of four discrete functions: air circulation
over the testing substrate; interaction of the testing compound with the
airborne chemicals; analysis of the test results; and reporting of results to
the user.  A fan assists the device in sampling air. The air can be
collected from the area surrounding the subject (person or item) or from breath.
The air is analyzed using proprietary technology and the results are stored on
the device (such as by flash cards) and reported via an LCD screen to the user
or outputted to other devices such as a notebook computer.  The product is
about the size of a large portable audio compact disk player.



The testing substrate includes multiple nano structures.
 Nanostructures are larger than molecules but are submicroscopic or from .1
to 100 nanometers.  Nanostructure sensing compounds are placed on the
polycarbonate disk such as those used in a CD player.  For Homeland
Security applications, the sensing compounds are well known and already in use
in the industry. For other applications, such as detection of illegal drugs or
disease, many of the sensing compounds are known, and the others can be
developed by QualSec for the specific application. When the airborne chemical
compound comes in contact with the sensing compound on the disk, it causes a
chemical reaction which changes the physical shape of the sensing compound. In
laymans terms, it distorts the sensing compound. This distortion can be read by
a laser similar to the manner in which the laser in an audio CD player reads the
audio track.  An electronic circuit and software in our device interprets
the laser signals into a measurement of the airborne compound, which is output
in user-friendly terms to a liquid crystal display screen, or to a USB port (USB
stands for universal serial bus and a USB port is a standard interface for
personal computers)  or to a portable memory (smart)  card such as
used in a digital camera. The smart card can be read by a card reader and the
data transferred to a computer.



Our olfactory sensing device can be manufactured for a variety of
applications, including Homeland Security (explosives), law enforcement (illegal
drugs), or medical (lung cancer or certain epidemic diseases).  Our
hand-held device will be designed to be universally used for all applications,
while the disk will be customized for each application and will program the
device for that application via software embedded in its programmable chip. The
revenue stream for QualSec can include sales or leasing of the sensing device
and sales of the sensing disks.



The only modification needed to use the device for all these
applications will be a simple programming change. For example, if the device is
being used for Homeland Security, the program (burned in on a programmable
computer chip or on a smart card) will know that track 1 on the testing disk is
sensitive for nitroglycerin, track 2 is sensitive for hexamethylene triperoxide
diamine, and so on for all the tracks on the disk. The program will also have
the algorithm to interpret the testing results for each track so as to give the
parts per billion in the sample and set the threshold levels for alerts.
 If the device is used for law enforcement drug testing, there will be a
separate track for each drug to be tested. Correspondingly, the testing CD for
each type of test will have to be provided. QualSec can buy the polycarbonate
disks from any one of hundreds of suppliers, and apply the gel, track by track,
with a simple machine similar to a labeling machine.



For applications other than for Homeland Security, such as
detection of avian flu, we will need to develop the appropriate sensing compound
using principles of organic chemistry. Certain compounds have been developed to
date.  The development of sensing compounds is not overly complex.
 Because of the need to improve homeland security, the development of
artificial nose technology by universities, government laboratories, large
corporations, and startup companies has been heavily funded by governments,
industry, and venture capital. More than a dozen universities, two dozen
companies, and half-dozen national laboratories, domestic and foreign, are or
have been involved in the development of artificial nose technologies. This has
resulted in a very rapid advance of technologies, but also numerous and
different approaches that must be confusing to funding agencies and potential
investors.



The rapid advance of technology has, in the opinion of management,
rendered most of these approaches technically obsolete and many of the ongoing
projects have dead-ended. While the R&D efforts have resulted in many
commercial E-nose products, benchtop and portable, most have languished in the
market or been abandoned altogether. Some of these products have found niche
markets and continue to be sold.



All of the current approaches are limited by more than one of the
following problems:

·

Cost;

·

Selectivity;

·

Resolution;

·

Noise;

·

Reversibility;

·

Limited number of sensors in array
(discrimination)

o

Type of sensor

o

Redundancy of sensors;

·

Drift (the tendency of output devices
to not measure consistently)

o

Instrument instability

o

Sensor recovery, memory;

·

Reproducibility;

·

Effects of environment (humidity,
temperature, vibration, CO2, ethanol, etc.;

·

High power consumption;

·

Portability (size, weight, controlled
environment, etc.);

·

Requirement for skilled
operator;

·

Frequent calibration;

·

Inability to detect important odor
components, e.g. small amines, etc.;

·

Discrimination  ability to detect
the target odor in a complex odor background;

·

Failure to implement multidimensional
analysis of data, e.g. response of each sensor as function of time and amount of
exposure.



Many of these problems tend to be solved by miniaturization with a
technical and commercial trend to smaller and smaller sensor arrays. Multiple
sensors with integrated circuitry can be incorporated into a single chip for
low-cost, high-volume production with existing manufacturing resources.
Reduction to nanoscale (atomic dimensions) can further provide enhanced chemical
and physical properties, e.g. in some applications, single molecules can be
detected with a large signal/noise ratio. Consequently, recent R&D has
focused on development of nanotech sensors and arrays to develop the ultimate
artificial nose technology (nanotechnology is the natural limit to size
reduction).



The rapid and dramatic advances to the limit of miniaturization
with a large and growing technical data base offer new opportunities for small
companies to develop new sensors and sensor arrays.



QualSec intends to exploit such opportunities through unique
application of existing technologies combined with proprietary chemistries to be
incorporated into nanosize structures. Our approach allows for many different
type sensors and redundancy. We believe that our approach will meet current and
future needs for odor recognition. Our objectives are:



·

A single, low-cost, universal
instrument suitable for a variety of applications;

·

An easily insertable disk that will
be customized for each application and will program the instrument for the
application,  analysis of data, and display of results (new and updated
applications can be accommodated without changes to the instrument);

·

Large sensor array (many different
sensor types with redundancy can be accommodated on a small disk because of the
nanoscale size of the sensors);

·

Highly sensitive  low
parts-per-billion measurement (an advantage of nanosensor
characteristics)

·

Reliable: few moving parts,
off-the-shelf components;

·

Able to discriminate target odors in
the presence of interfering background odors (different sensor types,
redundancy, spacio-temporal analysis of data);

·

System resistant to:

o

Temperature & humidity variations
(sensor design supplemented by programming);

o

Sensor drift prevention &
compensation (advantage of nanosensor & advanced data analysis);

o

Sensor poisoning, e.g. a new,
low-cost disk can be as easily and quickly inserted as a CD

·

Real-time results in seconds (fast
response time is an advantage of nanosensors)

·

Handheld instrument (small size
possible because of technical approach and nanoscale sensors);

·

User friendly (disk will program for
operation, analysis of date, and display of results  just point and press the
start button).



Our competitors may decide in the future to copy QualSecs
approach, and since all of our competitors have more money and resources than
QualSec, competing could be difficult.



QualSec intends to file for patent protection of the overall
design and the technology which has been developed in building the prototype.
Our basic technology was developed by management prior to incorporation of the
company in October 2006, and contributed to QualSec by the founders.  No
other person other than QualSec has any rights in the technology. Presently,
QualSecs technology is not protected by patent but certain aspects of the
technology are being maintained as a trade secret.



Testing material is designed specifically for the target spectrum
of volatile organic compounds (VOCs), which is sought to be tested. The specific
testing nanosensors are deposited on a substrate similar to a music CD or video
DVD. For example, the test materials for explosive organic compounds are very
well known in the industry. These compounds will not require development by
QualSec, but other testing materials, e.g., for avian flu, will need to be
developed.  Note that the test disks will need to be manufactured
separately. Test disks will be single application, but the device can be used to
test for as many different applications as can be imagined, by utilizing the
appropriate disk.



After the testing nanosensors interact with the atmosphere, the
results are read by a laser beam similar to that used in a CD player.
Proprietary software will compile the results from scanning the test disk, and
output the results to an LCD (liquid crystal display such as used by a digital
watch) screen and/or permanent memory. Development of a working model is not
expected to present any novel engineering or design issues. QualSec will
endeavor to produce a design which is durable, reliable, aesthetically pleasing
and ergonomic for a low per unit cost.



The device will be designed for the spectrum of specific volatile
organic compounds (VOCs) which are being measured. With respect to Homeland
Security applications such as detection of explosives, these materials are
already standardized and are in use. QualSec will design a software interface to
report the test results to the user. We believe that the same device can be
customized for various applications by using the disk to program the software in
the device with different formulations for different applications.  This
flexibility will permit the use of different nanosensor arrays (type &
number) on the disk, as well as allow updates to programs developed for each
application.



QualSec intends to work on completion but has not had any
discussions with any manufacturer. The search for a suitable manufacturer will
be made by reviewing trade publications, personal references, internet searches,
and similar means.



An additional $3,000,000 in financing will be required by QualSec
for manufacturing design, component sourcing, manufacturing of testing disks and
regulatory compliance (e.g. documentation of FDA good manufacturing practices).
A final amount of $1,500,000 is estimated to be required at 18 months following
initial funding for marketing, quality control, and establishing a custom
service system. QualSec does not have any agreements in place to provide the
financing, although management believes that completion of a working model and
perhaps some purchase orders will enable QualSec to obtain such financing.



Market



QualSec intends to sell its artificial olfactory device in several
industries including medical and agricultural diagnostics, homeland security,
the food and beverage industries, environmental monitoring, detection and
monitoring of malodorants (chemicals which when aspired causes incapacitation),
processing monitoring, Quality Assurance/Quality Control, and several other
commercially important applications.



Two of the most attractive potential markets for QualSecs
artificial nose are medical diagnostics and homeland security. Hundreds of
volatile organic compounds are exhaled in human breath. These have been studied
by many investigators over several years using sophisticated laboratory
instruments. Such studies have shown that several diseases might be rapidly
diagnosed by screening for particular volatile organic compounds spectrums in
breath. Since the use of these sophisticated laboratory instruments requires
expensive instrumentation and skilled operators, a relatively inexpensive,
easy-to-use, low-cost, and effective artificial nose could be exceptionally
useful in screening patients for several diseases, and would have the important
benefits of being non-invasive and providing immediate results. It would
facilitate early detection of such diseases as lung cancer, especially among
smokers. Of particular importance is the likelihood of screening for early-stage
(latent period) viral diseases. An effective artificial nose could screen
travelers, medical personnel, and others to help control and effectively treat a
pandemic or victims of a terrorist attack. Various highly-infective and deadly
viruses have been identified by homeland security as potential terrorist weapons
of mass destruction. Determining an outbreak and extent of an epidemic is time
critical. Early-stage treatment dramatically increases survival rates, while
early identification of an outbreak would limit spread of the disease
potentially saving thousands or even millions of lives. Detection of explosives
and nerve gases for homeland security also presents opportunities for QualSecs
product. While this market is highly competitive, the potential low-cost and
ability to discriminate target spectra within a complex volatile organic
compounds background will be significant competitive advantages for QualSec.



Although medical diagnostics and homeland security are major
potential markets, several other very large markets could be targeted by
QualSec. A marketing study will be necessary to determine which markets and in
what order those markets will be pursued. In agricultural uses, for example, the
device could test for nutritional deficiencies or disease in livestock in a
quick, cost-effective, and non-invasive manner by sampling breath. An effective
artificial nose owes many of its potential applications to the lack of
dependability of the human nose (subjectivity, health, fatigue, effect of
previous exposure to odors, labor expense, time-of-day, etc.). In attempts to
reduce variability in odor assessment, various artificial noses, benchtop and
portable, have been evaluated for a variety of potential applications. Some of
these applications have been successful and some unsuccessful.  Odor
assessment by artificial nose has been investigated for beer; wine; distilled
spirits; milk; soymilk; fruits; vegetables; olive oil & vegetable fats;
cosmetics; packaging (off-odors); bacterial fermentation; interior &
exterior automobile odors; exhaust monitoring; malodors from animal facilities,
wastewater treatment plants, & composting facilities; illegal drug
manufacture; detection of buried bodies; etc.  QualSecs management
believes that successful development of its nanotech based artificial nose will
allow the Company to penetrate most of these markets.

QualSec plans to market its products worldwide through established
distributors in each industry and market segment.



The food processing industry could utilize our device to check for
spoilage and other quality control issues. We believe that law enforcement,
Coast Guard and U.S. customs agencies can use our device very effectively for
illegal drug detection and to quickly screen for drug use by suspects. Finally,
business and environmental agencies can use the device to quickly detect the
leakage of harmful substances into the environment.



Competition



QualSecs management expects that competition in the artificial
nose business will be based on price, ease-of-use, portability, available
applications, and, in particular, technical advantages. As stated above, QualSec
is targeting a price of about $1,000 for its artificial nose instrument. This
target is based on managements plans to use mostly off-the-shelf, inexpensive,
proven components and to manufacture a single instrument for all applications.
Competitors prices begin at about $5,000 to $20,000 for a portable instrument,
while sophisticated benchtop instruments are considerably more expensive ranging
into the hundreds of thousands of dollars. QualSecs business strategy is to
keep the cost of the instrument low, while selling its disks at market value,
which is presently estimated to be about fifteen times direct cost. The minimum
price is expected to be no less than three to five times direct cost.
 While there are many variations in product features that are currently on
the market, QualSec has set objectives for its instrument (see foregoing
discussion) that are superior to the collection of features of any particular
competitor.



As previously discussed, earlier technologies and their products
are being made obsolete by technical advances. While some E-nose products may
survive and prosper in niche markets, QualSec management believes that most of
the potential applications in medical diagnostics, homeland security, and other
large markets will eventually be served by products based on nanotechnology
because of its many technical advantages and potential for lower cost.
 Further, QualSecs management believes that continued obsolescence based
on size reduction is unlikely because nanotechnology is the practical lower
limit for molecular detection.



Thus, our potential competitors include those companies that are
developing or are likely to develop nanosensors.  At present, QualSec is
aware of only three nanotechnologies that are useful for development of
nanosensors for VOCs. These and companies known to be exploiting them are as
follows:



·

Carbon Nanotubes

o

Nanomix

·

Carbon Nanowires

o

Nanosys

·

Quantum Dots

o

Invitrogen (acquired Quantum Dot
Corp.)

o

Evident Technologies

Nanomix is aggressively developing nanotube sensors for industrial
and medical applications. A nanotube sensor system, however, has some
significant problems that include:



1)

extreme sensitivity to the environment  chemical and biological
species in the vicinity of the nanotubes are likely to alter the electronic
signal;

2)

cost  each analyte requires a separate silicon chip transistor
resulting in a practical limit to the size of the array;

3)

the nanotubes currently use existing, off-the-shelf coatings
(metal oxides, polymers, etc.), which have known problems, e.g. sensitivity,
selectivity, sensitivity to humidity and other gases, stability, robustness,
reversibility, etc.



QualSec
Management believes that Nanomix could be its major competitor. Nanomix is one
of the leading companies in the nanotechnology field, appears to be well
financed and has many products under development.



Nanosys is developing nanowire sensors. However, these sensors
suffer the same problems as nanotube sensors, and Nanosys is known to be focused
on developing other nanotechnologies for large market applications including
flexible electronics, non-volatile memory (memory that survives the shut down of
a computer or other device), fuel cells, solar cells and biological research
materials. Nanosys has been involved in nanotechnology for several years, is a
medium sized competitor which, to the knowledge of QualSec, is adequately funded
and well respected, although QualSec does not have information on the products
of Nanosys that will compete directly with QualSec.



Invitrogen and Evident Technologies are known to be developing
quantum dot technologies. Quantum Dots are nanosize crystals that can emit many
different colors when excited by ultraviolet light. QualSec management does not
know if either company is actively developing sensors for VOCs. Evident
Technologies is developing its EviFluors Technology, which uses antibodies
modified to quantum dots. Using a single ultraviolet light excitation source,
their quantum dots can be used to track a number of different proteins
simultaneously in one sample. They have received a National Institute of Health
grant to develop a quantitative assay to detect breast cancer.  Such
pursuits do not predict commercial competition. Invitrogen is a public company
traded on NASDAQ under the symbol IVGN and a market capitalization of over $3
billion. It appears to be well established and  well financed.
 Evident Technologies is a medium sized private company and a leader in the
quantum dot industry. QualSec has no knowledge of Evidents financial condition,
and to QualSecs knowledge has no product under development similar to QualSec,
although Evident probably could produce such a product.



With respect to the Homeland Security applications, our principal
competition consists of GE Security and Smiths Detection, a unit of London-based
Smiths Group PLC , which manufactures the large puffer portals found at
airport security checkpoints to check passengers. These machines are large
enough that they need to be stationary, cost about $160,000, and test for a
limited range of compounds. A few portable and handheld E-nose instruments are
commercially available in the price range of about $5,000 to $20,000. In
addition to high cost, all have more than one of the problems previously
discussed. We expect our device to be fully portable, cost less than $1,000 and
test many times greater number of compounds. Smiths Group PLC is very large and
one of the dominant players in their field. To QualSecs knowledge Smiths Group
PLC have unlimited funding available.



The TSA also employs Explosive Trace Detection Machines (ETDs)
to check suspicious items at security checkpoints.  The following is quoted
from a notice for a June 29, 2006 U.S. House Aviation Subcommittee hearing: ETD
machines are roughly the same size as a common laser printer and cost only a few
thousand dollars.  ETD machines can detect minute traces of explosive
residue, which may have been transferred to baggage surfaces through direct or
indirect contact.  While the ETD machines themselves have extremely high
detection rates and very low false-positive rates, the process for collecting
trace samples is slow, very labor intensive, and highly susceptible to human
error.  Currently, there are over 7,400 ETD machines deployed. QualSec
believes that its device will be less costly, costing less than $1,000,
 and be much quicker and more reliable because our device can sample air
from specific areas and does not need swiping of specific areas.



QualSec understands that a technology being developed by New
York-based L-3 Communications Holdings Inc. would check for explosives by
analyzing material on traveler's skin and clothing when they push a short
swinging gate. L-3 Communications Holdings is listed on the New York Stock
Exchange under the symbol LLL and is one of the worlds largest defense and
aerospace contractors.



Osmetechs SAW detection systems detects volatile chemicals
emitted by bacteria and is being marketed to detect early stage pneumonia,
urinary tract infections and bacterial infections.  We believe our device
will be more accurate and less costly. Osmetech is listed on the London Stock
Exchange under the symbol OMH and is a medium sized company with adequate access
to financing. Osmetech does not have competing products but probably could
develop such products.



Innovative Biosensors Inc. of Rockville, Maryland has reportedly
licensed technology called PANTHER from MIT which is claimed to be capable of
detecting airborne pathogens within 3 minutes. The product, which is marketed
under the name Bioflash claims to detect 24 pathogens, including anthrax,
plague, smallpox, tularemia and E. coli, using just a few dozen particles in a
liter of air. The sensor uses modified human immune cells, called B cells, to
detect the pathogens. QualSec believes its technology is far better because it
is capable of detecting the same and many more pathogens in a matter of seconds,
and uses non-perishible sensing media. In contrast, Bioflash requires the human
immune cells for its testing, which cells must be refrigerated near the testing
area.



Most of QualSecs potential competitors are larger, better
financed, and many have established markets and market relationships. Most,
however, have multiple product lines and do not focus their resources entirely
on their artificial nose products. Further, only a few competitors offer
handheld or portable instruments. Most of these employ older, obsolete
technologies. QualSecs management believes that a market opportunity exists for
its proposed artificial nose product. QualSecs management believes that its
artificial nose product will compete on the basis of price, ease-of-use,
portability, available applications, and, in particular, technical advantages.



Employees



We currently have only one employee, our President. We intend to
hire one person in administration and two in research and development when we
receive additional funding.  All of these employee estimates are assuming a
full time basis. We have no firm plans on incentive or benefit plans but we have
a stock option plan. We believe these employee levels will be sufficient for the
next 12 months. In addition, some of our research and development has been
outsourced to independent consultants.



Intellectual
Property



Our technology is proprietary. We filed for patent protection on
our technology in March 2008 and we believe our patent position is strong. The
inventors of the patent are our officer and director and the research
consultant, who will assign all rights to the patent application and other
intellectual property rights to QualSec.  We will also rely on trade
secrets and other confidential information developed in the future. Employees,
contract researchers and suppliers will be required to sign confidentiality and
work-for-hire agreements to safeguard our proprietary technology.



Governmental
Regulation.



The Homeland Security product is not subject to any governmental
regulation, but the marketing of the device for medical diagnostic use will
require approval of the FDA. The FDA classifies medical devices as either Class
I, Class II or Class III devices. Most Class I devices are exempt from the FDA
approval process. Class II devices cannot be marketed unless in an exempt
subclass or unless the manufacturer provides a 90 day notification process with
the FDA (known as a 510(k) filing) and Class III need pre-market approval (PMA)
before marketing. In any event, FDA regulations require medical devices to be
safe, effective, and to be manufactured in accordance with certain quality
standards, and requires that compliance with FDA standards be documented.
  We believe that our device will be classified as a Class I or Class
I device and will only need to comply with the 510(k) procedure. More
information about the FDAs requirements can be found at the FDAs website at
http://www.fda.gov/cdrh/ode/index.html.



Item 1A. RISK FACTORS.



Potential investors should consider the following special risk
factors which pertain to the Company.

There are
three types of risks to investing in our common stock, the first risk being
risks related to the development of our products and the second type of risk
relates to the structure of the offering; and the final risk is related to the
uniqueness of the device.



Risks
Related to Development of our Device



We may not be able to have our device manufactured or we may not
be able to have it manufactured on a timely basis or cost effectively.



If the device is not manufactured, QualSec will not enjoy any
sales revenue.  We have not identified the persons who will manufacture the
device in commercial quantities and cannot engineer the design for manufacturing
until the prototype is completed. We may not be able to find a suitable
manufacturer. The manufacturer may not be able to obtain raw materials or
complete manufacture at a price which is economically feasible. We may be unable
to engineer the design for manufacture or be able to manufacture the device on a
timely, efficient basis with sufficient quality control. There could arise
unforeseeable problems with the manufacture, including problems with quality
control, inability of the manufacturer to produce finished product timely and in
accordance with the specifications, or with obtaining components. Thus, even if
we can design the device and can find a market for the device we may not be able
to have it efficiently and timely manufactured, leading to a total loss of your
investment.



We could be subject to product liability claims.



Currently diagnostic and sensory devices are not generally subject
to product liability claims for errors or inaccuracies. For example, under
QualSec's understanding of product liability law, if our device is used to
screen for lung cancer, and returns a false negative as the result (the patient
had lung cancer but the device was unable to detect it), QualSec would not be
liable for product liability claims. This is due to public policy which
recognizes that first, it is impossible to produce a 100% accurate testing
device, second, that fact is recognized and so medical professionals use not
only one test but a complex of factors in making a diagnosis, and finally
because should the law impose product liability for inaccurate test results, no
manufacturer would supply testing equipment and no lab would perform tests.
However, new laws or judicial decisions could be enacted imposing such
liability. Also, the device will use chemicals suspended in gel and placed on a
polycarbonate disk as the testing medium. It is possible that some person,
perhaps a toddler, will attempt to remove the gel from a testing disk and ingest
the gel, resulting in injury or poisoning, and a court of law could hold QualSec
liable under product liability theory. QualSec does not currently have any
product liability insurance and may not obtain such insurance, so that any legal
judgment and the legal defense costs could seriously and adversely affect
QualSec.



Our device's competitive advantage, if any, will be primarily
based on the technology we have and will develop. Competitors may develop
technology which is superior or believed to be superior.



Although QualSec has filed a patent application and may file
additional patent applications on certain aspects of its technology, such patent
applications may not be approved, may be contested by competitors or may be
infringed upon. Any patent application we file is subject to review by the U.S.
Patent Office and may not be approved.  If our patent applications are not
approved, competitors can copy our technology with impunity. We may lack funds
for any patent litigation, even if patent applications are granted. Further,
technological advances or elevated customer expectations may render our device
obsolete.



We have not secured orders for the sale of the device and cannot
do so until we have completed a working model and can be sure we can supply the
device in commercial quantities.



If we cannot obtain buyers for the device we will not be able to
continue in business. Even if we secure orders, we may not attain profitability
and will be unable to maintain operations unless we are able to obtain
additional financing. Such financing may be impossible to find on terms
satisfactory to QualSec.



Risks
Related to the Common Stock



There is only a limited public trading market for the common
stock.



Investors may not be able to resell their common stock for a
profit, if at all, and thus could lose all or part of their investment. Our
common stock will be a penny stock (as defined in Exchange Act Rule 3a-51) for
the foreseeable future  which means that brokers can only buy or sell the
common stock on an unsolicited basis. The penny stock rule and similar
regulations will reduce the likelihood that a liquid trading market will arise
for the common stock. The common stock may trade at less than the offering
price. Because our stock will be a penny stock a shareholder may find it more
difficult to dispose of, or to obtain accurate quotations as to the price of,
QualSec's common stock.



In the absence of a security being quoted on NASDAQ, or the
Company having $2,000,000 in net tangible assets, trading in the Common Stock is
covered by Rule 15c2-6 promulgated under the Securities Exchange Act of 1934 for
non-NASDAQ and non-exchange listed securities.  Under such rule,
broker/dealers who recommend such securities to persons other than established
customers and accredited investors (generally institutions with assets in excess
of $5,000,000 or individuals with a net worth in excess of $1,000,000 or an
annual income exceeding $200,000 or $300,000 jointly with their spouse) must
make a special written suitability determination for the purchaser and receive
the purchaser's written agreement to a transaction prior to sale.
 Securities are also exempt from this rule if the market price is at least
$5.00 per share, or for warrants, if the warrants have an exercise price of at
least $5.00 per share.



The Securities Enforcement and Penny Stock Reform Act of 1990
require additional disclosures related to the market for penny stocks and for
trades in any stock defined as a penny stock.  The Commission's regulations
under such Act define a penny stock to be any NASDAQ or non-NASDAQ equity
security that has a market price or exercise price of less than $5.00 per share
and allow for the enforcement against violators of the proposed rules.  In
addition, unless exempt, the rules require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule prepared by the
Commission explaining important concepts involving the penny stock market, the
nature of such market, terms used in such market, the broker/dealer's duties to
the customer, a toll-free telephone number for inquiries about the
broker/dealer's disciplinary history, and the customer's rights and remedies in
case of fraud or abuse in the sale.  Disclosure also must be made about
commissions payable to both the broker/dealer and the registered representative,
current quotations for the securities, and if the broker/dealer is the sole
market-maker, the broker/dealer must disclose this fact and its control over the
market.  Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks.



While many NASDAQ stocks are covered by the proposed definition of
penny stock, transactions in NASDAQ stock are exempt from all but the sole
market-maker provision for (i) issuers who have $2,000,000 in tangible assets
($5,000,000 if the issuer has not been in continuous operation for three years),
(ii) transactions in which the customer is an institutional accredited investor
and (iii) transactions that are not recommended by the broker/dealer.  In
addition, transactions in a NASDAQ security directly with the NASDAQ
market-maker for such securities, are subject only to the sole market-maker
disclosure, and the disclosure with regard to commissions to be paid to the
broker/dealer and the registered representatives.



In order to provide the additional $4,500,000 required to complete
development, manufacture and market the device, QualSec will need to offer
additional shares of its common stock or offer other securities.



QualSec cannot predict the terms of these offerings nor the price
at which shares of common stock may be offered. If we do not obtain the
additional $4,500,000 required to complete development, manufacture and market
the device, we will not be able to complete development, manufacture the device,
market it or even remain in operations, resulting in a loss of all or most of
your investment. QualSec is required to raise an additional $4,500,000 in order
to design the prototype for manufacture, manufacture the device, market the
device, and pay for general and administrative expenses on a day to day basis.
The investor should bear in mind that $4,500,000 is a significant amount of
money. We might have to raise this $4,500,000 in one or more stages or
offerings, each with its own terms and dilution to existing shareholders. Such
an offering might require the participation of institutional investors, which
are more likely to demand more stringent terms for any placement.  QualSec
has not determined the terms for any offering.  Any future offering may be
for common stock, or may be for a security with rights superior to that of the
common stock. In connection with any offering, QualSec may be required to add
investors representatives to the Board of Directors, or may be required to
commit to other conditions. If other conditions are not met, existing investors
could have their rights or equity ownership substantially diluted. We cannot at
this time determine the terms of any follow-on offering or whether it will ever
occur.



Item 1B.
 UNRESOLVED STAFF COMMENTS



We have no unresolved staff comments.



Item 2.

DESCRIPTION OF PROPERTY



We are currently renting office space in Chapel Hill, NC for
$250 per month. We believe this space is sufficient for the foreseeable future.



Item 3.

LEGAL PROCEEDINGS



Not Applicable.





2



Item 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 2008.



PART II





Item 5.

MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCK­HOLDER MATTERS



Market
Information and Sales of Unregistered Securities.



The Company's Common Stock has traded on the OTC Electronic
Bulletin Board under the symbol QLSC.OB since June 30, 2008. From May 29, 2008
to June 29, 2008 the Common Stock traded on the Pink Sheets LLC under the symbol
QLSC.PK. The following table sets forth the high and low trading prices for the
Common Stock in 2008. Trading in the Common Stock has been limited and sporadic
and does not constitute an established public trading market. The last sale
price was $.25.



Quarter
ended

High

Low



June
30, 2008

$.42

$.04

September
30, 2008

$.35

$.21

December
31, 2008

$.20

$.25







As of December 31, 2008 there were approximately 50 record holders
of Company common stock. The Company has not paid any dividends on its common
stock.  The Company currently intends to retain any earnings for use in its
business, and therefore does not anticipate paying cash dividends in the
foreseeable future.



Report of Offering
of Securities and Use of Proceeds Therefrom.



Our Offering Statement on Form 1-A, file number 024-10160, was
declared qualified by the Securities and Exchange Commission on June 13, 2007.
The Offering Statement qualified the sale of up to 30 million shares of common
stock, on a straight best efforts, no minimum basis, at a price of $.01 per
share, or $300,000 if all the offering was sold. No underwriter was employed. No
commissions or finders fees were paid. During the year ended December 31, 2007,
we sold $114,500 of this offering (11,450,000 shares). The remainder of the
offering was sold after December 31, 2007.



As disclosed in the Offering Circular, our President agreed to
loan up to $300,000 to Qualsec in order to provide for our cash needs, such
loaned amounts to be repaid from the offering. That officer did loan Qualsec
$200,000 in the year ended December 31, 2007, of which $185,500 (the amount
raised after year end) was repaid to him.  In the year ended December 31,
2007, the offering proceeds of $114,500 plus the proceeds of the officer loan
were used to pay offering expenses of $1,086, research and development expenses
of $140,000, officer salary and related payroll taxes totaling $77,232, and
general and administrative expenses of $44,791. Of the above expenditures, all
were made to non-affiliates except for the officer salary.



Company
repurchases of common stock during the year ended December 31, 2008.



There were no Company repurchases of common stock during the year
ended December 31, 2008.





3



Equity Compensation Plans



Equity Compensation Plan Information as of December 31, 2008

Number of Securities

remaining available

(a)

(b)

for future issuance

Number of Securities

Weighted Average

under equity

To be issued upon



exercise price of

compensation plans



exercise of existing

outstanding option(excluding Securities







Options, warrants

warrants and

reflected in



Plan Category

and rights

rights

column (a)



Equity compensation



4,000,000

$.01

16,000,000

Plans approved by

Security holders



Equity compensation

-



-

-



Plans not approved

By Security holders





Total

4,000,000

16,000,000



The Board of Directors and Majority Shareholders have adopted and
approved a stock option plan (the Plan) dated the 16th day of October, 2006.
The purpose of the Plan is to enable the Company to offer its officers,
directors, employees and consultants and advisors performance-based incentives
and other equity interests in the Company, thereby attracting, retaining, and
rewarding such personnel. There is reserved for issuance under the Plan an
aggregate of 20,000,000 shares of Common Stock, and no options have been
granted. All of such shares may, but need not, be issued pursuant to the
exercise of incentive stock options. Options granted under the Plan may be
either incentive stock options, as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the Code), or non-statutory stock options.
In addition, awards of or rights to purchase shares of  Common Stock
(Stock Rights) may be granted under the Plan.

Sales of
Unregistered Securities during the year ended December 31, 2008.



In October, 2008, the Company sold 109,400,000 shares of common
stock to an investor group for $200,000 cash.  The two officers and
directors each cancelled 54,700,000 shares in connection with the financing;
therefore the total shares outstanding were unchanged.

Securities and Exchange Commission Rule 15g

Our Companys shares are covered by Rule 15g of the Securities and
Exchange Act of 1934, as amended that imposes additional sales practice
requirements on broker/dealers who sell such securities to persons other than
established customers and accredited investors (generally institutions with
assets in excess of $5,000,000 or individuals with net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their
spouses). For transactions covered by the Rule, the broker/dealer must make a
special suitability determination for the purchase and have received the
purchasers written agreement to the transaction prior to the sale.
Consequently, the Rule may affect the ability of broker/dealers to sell our
securities and also may affect your ability to sell your shares in the secondary
market.

Section 15(g) of the Exchange Act also imposes additional sales
practice requirements on broker/dealers who sell penny securities. These rules
require a one-page summary of certain essential items. The items include the
risk of investing in penny stocks in both public offerings and secondary
marketing; terms important in understanding of the function of the penny stock
market, such as bid and offer quotes, a dealers spread and



4



broker/dealer compensation; the broker/dealer compensation, the
broker/dealers duties to its customers, including the disclosures required by
any other penny stock disclosure rules; the customers rights and remedies in
causes of fraud in penny stock transactions; and, the NASDs toll free telephone
number and the central number of the North American Administrators Association,
for information on the disciplinary history of broker/dealers and their
associated persons.

Change of Control.

There have been no changes of control.



PART
III



Item 6.

SELECTED FINANCIAL DATA



As a smaller reporting company we are not required to respond to
this item.



Item 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS



In 2007, we raised $113,401 in a Regulation A Offering and
obtained $120,000 from a loan provided by an officer and director with loan
proceeds as of December 31, 2007 totaling $200,000.  The remaining portion
of the offering was sold in January 2008 for proceeds of $184,500, which was
used to repay the loan in part. The remaining $15,500 owed to the officer and
director, plus accrued simple interest ($13,833 as of December 31, 2007)
 is payable  with interest at 8% convertible into common stock at
75% of the average trading price of the common stock for the first 10 days
of trading, or $.206625 per share.  In
November 2008, Qualsec began to repay the loan and interest on the $15,500 owed.
 As of December 31, 2008, there is $6,900 still owed to the officer.

We
borrowed $30,000 from an investment fund on March 12, 2008 under a convertible
promissory note due December 31, 2008, and bearing 8% interest. The note is
convertible into common stock at $.01 per share. An additional $100,000 was
loaned on the same terms on May 27, 2008. The fund is controlled by the brother
of an officer/director.  Interest of $6,653 was accrued and unpaid on the
notes as of December 31, 2008. In October, 2008, the Company sold 109,400,000
shares of common stock to an investor group for $200,000 cash.  The two
officers and directors each cancelled 54,700,000 shares in connection with the
financing; therefore the total shares outstanding were unchanged.





Our operations have been limited to development of our technology.
We have no sales or contracts for sales and have performed only preliminary
marketing. Homeland Security sales will be dependent on the government
procurement cycle, which in general involves a one-year lead time from awarding
contracts until sales can be made. Other sensing applications will not have
these time constraints. We believe that receipt of an additional $4.3 million in
financing will be required to reach sales and a break even point. If we
encounter a long delay in obtaining governmental contracts for our device this
date will be accordingly pushed back. We are engaged in discussions with several
potential purchasers of our sensing product, but have not entered into any
definitive agreement.  We had approximately $150,000 in cash as of December
31, 2008. We believe that this amount is sufficient to maintain a minimal level
of development and pay our operating expenses until the end of calendar 2009.
Should we succeed in obtaining a contract for our product, we may need
additional funding. We do not have any agreements or understandings for any such
additional financing.

We could
encounter delays in obtaining FDA clearance for our device if we cannot prepare
the required documentation for filing of the 510(k).



Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on the
Companys financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.



Contractual
Obligations



As a smaller
reporting company as defined by Item 10 of Regulation S-K, the Company is not
required to provide this information.



**Quantitative and Qualitative Disclosures About Market
Risk.**

As a smaller reporting company as defined by Item 10 of
Regulation S-K, the Company is not required to provide information required by
this Item.

Information included in this annual report  includes
forward looking statements, which can be identified by the use of
forward-looking terminology such as may, expect, anticipate, believe, estimate,
or continue, or the negative thereof or other variations thereon or comparable
terminology. The statements in "Risk Factors" and other statements and
disclaimers in this registration statement constitute cautionary statements
identifying important factors, including risks and uncertainties, relating to
the forward-looking statements that could cause actual results to differ
materially from those reflected in the forward-looking statements.







5

Since
we have not yet generated any revenues, we are a development stage company as
that term is defined in paragraphs 8 and 9 of SFAS No. 7.  Our activities
to date have been limited to seeking capital; seeking supply contracts and
development of a business plan.  Our auditors have included an explanatory
paragraph in their report on our financial statements as of December 31, 2007
filed within our 10-KSB, relating to the uncertainty of our business as a going
concern, due to our lack of operating history or current revenues, its nature as
a start up business, management's limited experience and limited funds.  We
do not believe that conventional financing, such as bank loans, is available to
us due to these factors.  We have no bank line of credit available to us.
 Management believes that it will be able to raise the required funds for
operations from one or more future offerings, in order to effect our business
plan.

Our future operating
results are subject to many facilities, including:



o
    our success in developing our technology;



o
    our ability to obtain customers for our sensing
device;

o
    the effects of competition;

o
    our ability to obtain additional financing; and

o
    other risks which we identify in future filings with the
SEC.

Any or all of our
forward looking statements in this annual report and in any other public
statement we make may turn out to be wrong. They can be affected by inaccurate
assumptions we might make or by known or unknown risks and uncertainties.
Consequently, no forward looking statement can be guaranteed. In addition, we
undertake no responsibility to update any forward-looking statement to reflect
events or circumstances which occur after the date of this report.



Item 8.

FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.



Our
financial statements are appended to the end of this report and include the
following:

Report of
Independent Registered Public Accounting Firm

Balance
Sheets as of December 31, 2008 and 2007

Statement of
Income for the years ended December 31, 2008 and 2007 and the period inception
(October 18, 2006) to December 31, 2008

Statement of
Cash Flows for the years ended December 31, 2008 and 2007 and the period
inception (October 18, 2006) to December 31, 2008

Statement of
Stockholders Deficit for the period inception (October 18, 2006) to December
31, 2008

Notes to
Financial Statements.



Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNT­ING
AND FINANCIAL DISCLOSURE



On September 25, 2008 the Registrant's dismissed its former
independent accountant De Joya, Griffith & Co., LLC ("De Joya").  The
report by De Joya on the financial statements of the Registrant dated March 18,
2008, including balance sheets as of December 31, 2007 and 2006 and the
statements of operations, cash flows and statement of stockholders' equity for
the years ended December 31, 2007 and 2006 and the period inception (October 18,
2006) through December 31, 2007 did not contain an adverse opinion or a
disclaimer of opinion, nor was qualified or modified as to uncertainty, audit
scope or accounting principles.  During the period covered by the financial
statements through the date of dismissal of the former accountant, there were no
disagreements with the former accountant on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or
procedure.

During
the fiscal years ended December 31, 2007 and 2006 and through September 25,
2008, there were no reportable events with respect to the Company as that term
is defined in Item 304(a)(1)(v) of Regulation S-K.On September 25, 2008, the
Registrant engaged The Blackwing Group. LLC as its independent auditor. This
engagement was approved by the Board of Directors. During the two fiscal years
ended December 31, 2007, and the interim period until the engagement of The
Blackwing Group, LLC,  the  Registrant  did not consult with The
Blackwing Group LLC on the  application  of accounting
 principles to any specific transaction nor the type of audit opinion that
 might  be  rendered  on the  Registrant's
 financial  statements.  Further, The Blackwing Group did not
provide any written or oral advice that was an important factor considered by us
in reaching a decision as to any such accounting, auditing or financial
reporting or any matter being the subject of disagreement or "reportable event"
or any other matter as defined in Regulation S-K, Item 304 (a)(1)(iv) or
(a)(1)(v).



Item 9(T).

CONTROLS AND PROCEDURES

Our management is
responsible for establishing and maintaining adequate internal control over
financial reporting. Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
we conducted an evaluation of the effectiveness of our internal control over
financial reporting as of December 31, 2008 using the criteria established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). A material weakness is a
deficiency, or combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of the Company's annual or interim financial statements will not
be prevented or detected on a timely basis. In its assessment of the
effectiveness of internal control over financial reporting as of December 31,
2008, we determined that our internal controls  and disclosure controls and
procedures were not effective to enable us to accurately record, process,
summarize and report certain information required to be included in the
Companys periodic SEC filings within the required time periods. The
reason for our disclosure controls and procedures were not deemed
effective is that this Annual Report, when originally filed, did not
include managements report on internal controls over financial
reporting, but only its report on disclosure controls.

This
annual report does not include an attestation report of the Companys registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only managements report
in this Annual Report.



Item 9B.

OTHER INFORMATION



6





Not
applicable



Item 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE



The members of the Board of Directors of the Company serve until
the next annual meeting of stockholders, or until their successors have been
elected.  The officers serve at the pleasure of the Board of Directors.
 Information as to the directors and executive officers of the Company is
as follows.



Commencing in September, 2006, Mr. Joel Hand, age 48, has devoted
his efforts full time to the development of QualSec. He has also been the
director, President and Chief Financial Officer  since inception of QualSec
in October 2006.  Prior to that, and since 1990, Mr. Hand has been a
practicing attorney in La Jolla, California and Chapel Hill, North Carolina,
advising development stage companies in financing, intellectual property and
corporate governance.  Mr. Hand received a JD from Loyola University School
of Law in 1988 and a BA from Occidental College in 1985.



Code of
Ethics



We have not adopted a code of ethics which applies to the
chief executive officer, or principal financial and accounting officer, because
of our level of operations at this time. We intend to adopt a code of ethics
before December 31, 2009.



Audit
Committee Financial Expert



QualSec does not have an audit committee.  QualSec does not
have a financial expert on its audit committee, because of the difficulty
encountered by all small public companies in obtaining outside board members.
 We cannot predict when, if ever, we will be able to attract a person to
the board of directors who is a financial expert.





7



Item 11. EXECUTIVE COMPENSATION



The following table sets forth the cash compensation of QualSec's
executive officers and directors during each of the three years since inception.
 Only one months compensation was paid or accrued in 2006, as QualSec was
incorporated in October 2006. Dr. Kelton resigned in August 2008.
  The remuneration described in the table does not include the cost of
benefits



8



which may be furnished to the named executive officers, including
premiums for health insurance and other benefits provided to such individuals
that are extended in connection with the conduct of our business. Such amounts
are less than $10,000 per year per employee.



|                            | 2006        | 2006                      | 2007          | 2007                     | 2008          | 2008                    
|--------------------------- | ----------- | ------------------------- | ------------- | ------------------------ | ------------- | ------------------------
|Name and
Office             | Salary      | Deferred Salary           | Salary        | Deferred Salary          | Salary        | Deferred Salary         
|                            |             |                           |               |                          |               |                         
|Joel Hand,
 President       |             |                           |               |                          |               |                         
|And Chief
Financial Officer | $
        - | $
                12,500  | $
          - | $
              150,000  | $
          - | $
              150,000 
|                            |             |                           |               |                          |               |                         
|Dr. Arden A.
Kelton         | $ 6,000     | $
                  6,500 | $ 72,000      | $
                78,000 | $ 30,000      | $
                70,000



Chief Operating
Officer



Option/SAR
Grants in Year ended December 31, 2008 to Named Executive Officers



Number of

% of Total



Securities

Options/SARs

Underlying

Granted to

Options/SARs

Employees in

Exercise or Base

Expiration

Name

Granted (#)

Fiscal Year

Price ($/Sh)

Date



Arden Kelton, PhD.

1,000,000

25%

$.01

5/1/2013



Joel Hand

1,000,000

25%

$.01

5/1/2013





Aggregated
Option/SAR Exercises and Fiscal Year End Option/SAR Values





Number of



Securities

Value of

Underlying

Unexercised

Unexercised

In-the-Money

Options/SARs at

Options/SARs at

Fiscal Year End

Fiscal Year End

Shares Acquired

Exercisable/

Exercisable/

Name

on Exercise (#)

Value Realized ($)

Unexercisable

Unexercisable



Arden Kelton PhD.       -

--

377,778/1,000,000

$83,111/$220,000

Joel Hand

-

--

377,778/1,000,000

$83,111/$220,000



QualSec has no long term
incentive plans other than the plan described below.

Dr. Kelton and Mr. Hand each have an employment agreement dated
effective November 27, 2006.   The substantive terms of the agreements
are almost identical. The term of the agreements is three years with automatic
renewals for additional one year terms. Compensation is $12,500 per month, with
$6,500 of Dr. Keltons salary and all of Mr. Hands salary to be deferred until
such time as QualSec obtains additional funding. In the year ended December 31,
2006, Dr. Kelton received $6,000 and Mr. Hand received $0. If mutually agreed
QualSec can pay employment compensation in QualSec common stock, at a value to
be agreed upon. The employment agreement may be terminated by QualSec for Cause,
as defined. If terminated other than for Cause, the employee is entitled to
receive the greater of (i) fifty percent of the total aggregate remaining unpaid
portion of his then current salary and benefits as specified under the agreement
due for its remaining term, or (ii) employees then current salary for a period
equal to twelve months, plus pay any earned bonus and continue to pay the
employees benefits for twelve months. QualSec may terminate the employment
agreements after November 2008 if a manufacturing prototype has not been
produced and manufacturing agreements have not been secured by that time.
  In March 2008, Dr. Kelton agreed to defer an additional $4,000 per
month in salary.

By agreement dated August 21, 2008, executed and delivered on
August 26 , 2008, but effective August 16, 2008, Dr. Arden A. Kelton resigned as
an officer and director of Qualsec. Dr. Kelton was not a member of any Board
committees.



Under a Release and Settlement Agreement, Dr. Kelton agreed to
terminate his Employment Agreement; resigned as an officer and director; entered
into a Consulting Agreement with Qualsec; transferred 54,700,000 of his shares
of Qualsec common stock (retaining ownership of 15,300,000 shares) to Qualsec
Partners, LLC; and retained his employee stock options to purchase 1,000,000
shares. The Registrants obligations for deferred salary owed to Dr. Kelton were
not cancelled by the Release and Settlement Agreement.  Dr. Kelton agreed
to lock up his remaining 15,300,000 shares for 365 days.



The
Consulting Agreement provides for Dr. Kelton to perform consulting services to
the Registrant on an as needed basis at a compensation of $2,500 per month, but
subject to the Registrant receiving continuing funding for its business. The
Consulting Agreement may be terminated upon no less than 60 days written notice
to Dr. Kelton.



QualSec, by resolution of its Board of Directors and stockholders,
adopted a 2006 Stock Option Plan (the "Plan") on October 18, 2006.
  The Plan enables the Company to offer an incentive based
compensation system to employees, officers and directors and to employees of
companies who do business with the Company.



In the discretion of a committee comprised of non-employee
directors (the "Committee"), directors, officers, and key employees or employees
of companies with which we do business become participants in the Plan upon
receiving grants in the form of stock.  A total of 20,000,000 shares are
authorized for issuance under the Plan, of which options for 4,000,000 shares
have been granted.   The Company may increase the number of shares
authorized for issuance under the Plan or may make other material modifications
to the Plan without shareholder approval.  However, no amendment may change
the existing rights of any option holder.



Any shares which are subject to an award but are not used because
the terms and conditions of the award are not met, or any shares which are used
by participants to pay all or part of the purchase price of any option may again
be used for awards under the Plan.  However, shares with respect to which a
stock appreciation right has been exercised may not again be made subject to an
award.



Stock options may be granted as non-qualified stock options or
incentive stock options, but incentive stock options may not be granted at a
price less than 100% of the fair market value of the stock as of the date of
grant (110% as to any 10% shareholder at the time of grant); non-qualified stock
options may not be granted at a price less than 85% of fair market value of the
stock as of the date of grant



Stock options may be exercised during a period of time fixed by
the Committee except that no stock option may be exercised more than ten years
after the date of grant or three years after death or disability, whichever is
later.  In the discretion of the Committee, payment of the purchase price
for the shares of stock acquired through the exercise of a stock option may be
made in cash, shares of Common Stock or by delivery or recourse promissory notes
or a combination of notes, cash and shares of the Company's common stock or a
combination thereof.  Incentive stock options may only be issued to
directors, officers and employees.



Directors currently receive no compensation for their duties as
directors.



Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT



The following table sets forth information relating to the
beneficial ownership of Company common stock as of the date of this report by
(i) each person known by QualSec to be the beneficial owner of more than 5% of
the outstanding shares of common stock (ii) each of QualSec's directors and
executive officers, and (iii) all officers and directors as a group.
 Unless otherwise noted below, QualSec believes that all persons named in
the table have sole voting and investment power with respect to all shares of
common stock beneficially owned by them.  For purposes hereof, a person is
deemed to be the beneficial owner of securities that can be acquired by such
person within 60 days from the date hereof upon the exercise of warrants or
options or the conversion of convertible securities.  Each beneficial
owner's percentage ownership is determined by assuming that any warrants,
options or convertible securities that are held by such person (but not those
held by any other person) and which are exercisable within 60 days from the date
hereof, have been exercised. The percentages are based on 170,000,000 shares of
Common Stock being outstanding as of March 24, 2009.



Percentage

Name of

Number of

of Outstanding

Stockholder

Shares Owned

Common Stock



Joel
Hand(1)(2)

15,677,778

9.2%

President
and director



Arden
A. Kelton, PhD.(2)

15,677,778

9.2%



Qualsec
Partners, LLC

109,400,000

64.3%



All officers and

directors as a group

(1 person)

15,300,000

9.0%



(1) Does not
include shares issuable upon conversion of a promissory note in the amount of
$6,974 plus accrued interest on this amount and prior amounts outstanding,
totaling $0 as of December 31, 2008. The conversion rate is $.03 per share.

(2) Includes
vested options to purchase 377,778  shares of common stock granted to this
person in April 2008, exercisable at $.01 per share.



Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE



In
connection with organizing the Company, Dr. Kelton and Mr. Hand contributed
technology valued at $1 to purchase a total of 140,000,000 shares of Common
Stock.  Under Rule 405 promulgated under the Securities Act of 1933, Mr.
Hand and Dr. Kelton may be deemed to be promoters of the Company.  No other
persons are known to management which would be deemed to be promoters.



Joel Hand, an officer and shareholder, advanced $3,000 to the
Company in November 2006 which was repaid in the same month. The same officer
and shareholder loaned $80,000 to the Company on an interest free basis in
November 2006, and advanced an additional $120,000 during the year ended
December 31, 2007. The loan is represented by a promissory note which is due
upon completion of a proposed offering of common stock. Mr. Hand was repaid all
but $6,900 of this loan as of December 31, 2008. He is entitled to receive
interest of 8% per annum on the note commencing on July 1, 2007,  and, to
the extent such note is unpaid, it shall be convertible into common stock at 75%
of the initial trading price of Company common stock. ($.03). Interest of $8,100
was accrued and paid on the note as of December 31, 2008.



The Companys common stock is quoted on the OTC Bulletin
Board.  The OTC Bulletin Board does not impose standards relating to
director independence or the makeup of committees with independent directors, or
provide definitions of independence. Mr. Hand does not qualify as an
independent director under the NASDAQ Marketplace Rules and those standards
applicable to companies trading on NASDAQ.



Specifically,
in order to qualify as independent, the director must not:



| | · | have been any time
during the past three years was, employed by the Company or by any parent
or subsidiary of the Company;                                                                                                                                                                                                                                                                    
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                               
| | · | have accepted or have
a family member who accepted any compensation from the Company in excess
of $60,000 during any period of twelve consecutive months within the three
years preceding the determination of independence, other than compensation
for board or board committee service;                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                               
| | · | be a family member of
an individual who is, or at any time during the past three years was,
employed by the Company as an executive officer;                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                               
| | · | be, or have a family
member who is, a partner in, or a controlling shareholder or an executive
officer of, any organization to which the Company made, or from which the
company received, payments for property or services in the current or any
of the past three fiscal years that exceed 5% of the recipient's
consolidated gross revenues for that year, or $200,000, whichever is
more:
| |   |                                                                                                                                                                                                                                                                                                                                                                                               
| | · | be, or have a family
member who is, employed as an executive officer of another entity where at
any time during the past three years any of the executive officers of the
Company serve on the compensation committee of such other entity;
or                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                               
| | · | be, or have a family
member who is, a current partner of the Company's outside auditor, or was
a partner or employee of the Company's outside auditor who worked on the
Company's audit at any time during any of the past three
years.                                                                                                                                                       



Item 14.

Principal Accountant Fees and Services.



Audit
Fees



Our principal
accountants, The Blackwing Group. LLC, billed us $250 for review of our
quarterly filings in 2008.



Our prior
accountants, De Joya Griffith & Company, LLC billed us $13,000 and $8,000,
respectively, for audit and review  fees during  the fiscal years
ended December 31, 2008 and 2007.



Audit
related Fees



None.



Tax
Fees



None



All other
fees



None



Audit
Committees pre-approval policies and procedures.



We do not
have an audit committee.  Our engagement of the above auditors was approved
by the Board of Directors.  No services described in Item 9(e)(2) through
9(e)(4) of Schedule 14A were performed by our auditors.





PART
IV



9





Item 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



The financial
statements filed herewith are listed under Item 8. No schedules are
required.

These are the
exhibits 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 issuer and Arden
A. Kelton, PhD. (2) (3)

10.3

Employment Agreement between the issuer and Joel Hand(2)(3)

10.4

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

10.5

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

10.6

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

10.7,

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

10.8

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

10.9

Stock
Agreement. (6)

10.10

Form
of Stock Option Agreement with Kelton and Hand with schedule of details.(7)





Exhibit

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



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

(1)

Incorporated by reference with such Exhibit as filed with the
original filing of the small business issuers Offering Statement on Form 1-A,
file number 24-10160 (the Form 1-A) and also filed with Amendment 2 to such
Offering Statement.

(2)

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

(3)

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

(4)

Incorporated by reference to such document as filed with the
Companys Quarterly Report for the quarter ended March 31, 2008.

(5)

Incorporated by reference to such document as filed with the
Companys Quarterly Report for the quarter ended June 30, 2008.

(6)

Incorporated by reference to such document as filed with a Current
Report on Form 8-K dated August 26, 2008.

(7)

Filed herewith.



All
other Exhibits called for by Rule 601 of Regulation S-K are not applicable to
this filing.



SIGNATURES



Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.





QUALSEC







Date:

October 22, 2009

By:
    /s/ Edward Bukstel



President
and Chief Financial

Officer







Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the  Registrant and in
the capacities and on the date indicated.





QUALSEC







Date:

October 22, 2009

By:
    /s/ Edward Bukstel



President
and Chief Financial

Officer
(chief financial officer

and
accounting officer and duly

authorized
officer)









10









11



THE BLACKWING GROUP, LLC

18921G E VALLEY VIEW PARKWAY #325

INDEPENDENCE, MO 64055

816-813-0098



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Qualsec

1829
East Franklin Street

Chapel
Hill, NC 27514



We have audited the accompanying balance sheets of Qualsec
as 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 the Companys
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.



We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States).  Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation.  We believe that our audit
provides a reasonable basis for our opinion.



In our opinion, such financial statements present fairly, in all
material 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 with accounting principles generally accepted in the United States of America.



The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note R to the
financial statements, the Company faces competition from existing companies with
considerably more financial resources and business connections. These conditions
raise substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters also are described in Note K. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

[qualsec10k2008final002.gif]

The
Blackwing Group, LLC

Independence,
Missouri

March
20, 2009





12



REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To
the Board of Directors and Stockholders

QualSec

North
Logan, Utah



We have audited the accompanying balance sheets of QualSec (A
Development Stage Company) as of December 31, 2007 and 2006, and the related
statements of operations, stockholders equity, and cash flows for the years
then ended and from inception (October 18, 2006) through December 31, 2007.
These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based
on our audits.



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



In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of QualSec as of
December 31, 2007 and 2006, and the results of its operations and cash flows for
the years then ended and from inception (October 18, 2006) through December 31,
2007 in conformity with U.S. generally accepted accounting principles.



The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 6 to the
financial statements, the Company has suffered recurring losses from operations,
which raise substantial doubt about its ability to continue as a going concern.
Managements plans in regard to these matters are also described in Note 6. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.



De Joya Griffith & Company, LLC



/s/ De Joya Griffith & Company, LLC

Henderson, NV

March
18, 2008





13











|QUALSEC
[A
Development Stage Company]              
|---------------------------------------------------
|BALANCE
SHEETS                                     
|                                                   
|                                                   
|                                                   
|Current
Assets                                     
|Cash
and cash equivalents                          
|Total
Current Assets                               
|                                                   
|Property
and equipment, net                        
|Other
assets                                       
|Technology
rights                                  
|                                                   
|Total
Property and Equipment                       
|                                                   
|Total
Assets                                       
|                                                   
|LIABILITIES AND STOCKHOLDERS' DEFICIT              
|                                                   
|Current
Liabilities                                
|Accounts
payable and accrued liabilities           
|Deferred
compensation payable - related party      
|Convertible
note payable - related party           
|Accrued
interest - related party                   
|                                                   
|Total
Current Liabilities                          
|                                                   
|Total
Liabilities                                  
|                                                   
|Stockholders'
deficit (Note B)                     
|Preferred
stock, no par value; unlimited number of 
|shares
authorized; no shares issued and outstanding
|                                                   
|Common
stock, no par value; unlimited number of    
|shares
authorized; 170,000,000 and 151,450,000     
|shares
issued and outstanding                      
|                                                   
|Additional
paid in capital                         
|                                                   
|Retained
Earnings (Accumulated Deficit)            
|                                                   
|Total
stockholders' deficit                        
|                                                   
|Total
liabilities and stockholders' deficit        
|                                                   







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



|QUALSEC                      
|-----------------------------
|[A Development Stage Company]
|INCOME STATEMENTS            



|                              |                                  |         |             |             |                 | Year        |                 | Year            |                           | From
Inception     
|----------------------------- | -------------------------------- | ------- | ----------- | ----------- | --------------- | ----------- | --------------- | --------------- | ------------------------- | -------------------
|                              |                                  |         |             |             |                 | Ended       |                 | Ended           |                           | on October 18,
2006
|                              |                                  |         |             |             |                 | "Dec. 31    |                 | "Dec. 31        |                           | Through
December   
|                              |                                  |         |             |             |                 | 2008        |                 | 2007            |                           | 31,
2008           
|Total Income                  |                                  |         |             |             | $
            - |             | $
            - |                 | $
                      -
|                              |                                  |         |             |             |                 |             |                 |                 |                           |                    
|Total Cost of Sales           |                                  |         |             | -           |                 | -           |                 | -              
|                              |                                  |         |             |             |                 |             |                 |                 |                           |                    
|Gross Margin                  |                                  |         |             |             | -               |             | -               |                 | -                        
|                              |                                  |         |             |             |                 |             |                 |                 |                           |                    
|Expenses                      |                                  |         |             |             |                 |             |                 |                 |                          
|                              | General and
Administrative       |         | 103,164     |             | 44,791          |             | 153,840        
|                              | Compensation Expense             |         |             | 275,454     |                 | 324,232     |                 | 626,126        
|                              | Research and Development         |         | 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 - Related
Party |         | (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) per
share   |                                  |         | $
  (0.14)  |             | $
   (0.00)     |             |                
|                              |                                  |         |             |             |                 |             |                 |                 |                           |                    
|Basic weighted average number |                                  |         |             |             |                 |            
|                              | common stock shares
outstanding  |         | 170,000,000 |             | 145,920,137     |             |                













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



















|Qualsec                                                    
|-----------------------------------------------------------
|[A Development Stage Company]                              
|STATEMENT OF STOCKHOLDERS' DEFICIT                         
|FROM INCEPTION (OCTOBER 18, 2006) THROUGH DECEMBER 31,
2008
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|Balance,
October 18, 2006                                  
|                                                           
|October
18, 2006                                           
|Stock
issued for                                           
|Technology
rights                                          
|Net
loss                                                   
|                                                           
|Balance,
December 31, 2006                                 
|                                                           
|September
2007,
Issuance
of stock for cash                 
|Net
loss                                                   
|                                                           
|Balance,
December 31, 2007                                 
|                                                           
|January
2008, stock issued for cash                        
|                                                           
|June
2008, stock options issued                            
|                                                           
|September
2008 Reclassification of members'                
|contribution
to additional paid-in capital                 
|                                                           
|Net
loss                                                   
|                                                           
|Balance,
December 31, 2008                                 









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













QUALSEC

(A
DEVELOPMENT STAGE COMPANY)

STATEMENT
OF CASH FLOWS

From
Inception

For
the Year Ended

(Oct.
18, 2006

December
31,

to

2008

2007

Dec.
31, 2008

CASH FLOWS FROM OPERATING
ACTIVITIES



Net
Income (Loss)

$

(497,413)

$

(522,856)

$

(1,052,595)



Adjustments to reconcile
net income to net cash provided

By operating activities

Depreciation

1,911

744

2,706

(Increase)
decrease in:

Accounts
receivable

--

--

--

Prepaid
Expenses

--

500

--

Increase
(decrease) in:

Accounts
Payable and Accrued Liabilities

50,004

18,107

68,617

Accrued
Interest  Related Party

(7,180)

13,833

6,654

Sales
Tax Payable

--

--

--

Deferred
Compensation Payable  Related Party

220,000

227,053

467,001

Net Cash
Provided (Used) By

Operating
Activities

(232,678)

(262,619)

(507,617)



CASH FLOWS FROM INVESTING
ACTIVITIES

Fixed
Asset Additions

(4,030)

(1,542)

(7,767)

Net
Cash (Used) By Investing Activities

(4,030)

(1,542)

(7,767)



CASH FLOWS FROM FINANCING
ACTIVITIES

Proceeds
From Convertible Note Payable  Related Party

130,000

120,000

330,000

Payments
on Convertible Note Payable  Related Party

(184,500)

--

(184,500)

Proceeds
From Loan  Related Party

--

--

3,000

Payments
on Loan  Related Party

(8,526)

--

(11,526)

Stock
Issued for Services

30,000

--

30,000

Stock
Issued for Cash

385,488

113,402

498,888

Capital
Contributions

--

--

--

Net
Cash (Used) By Financing Activities

352,461

233,402

665,861



NET
INCREASE (DECREASE) IN CASH

115,753

(30,760)

150,477



CASH
AT BEGINNING OF PERIOD

34,724

65,484

--



CASH
AT END OF PERIOD

$

150,477

$

34,724

$

150,477



Supplemental Disclosure
of Cash Flow Information:

Cash paid during the period
for:

Interest

Income taxes



Supplemental Schedule of
Non-cash Investing and

Financing Activities:

Issuance
of stock for technology right

$

1

$

1

Offering
costs

$

1,099

$

1,099







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



14





QUALSEC

(A
Development Stage Company)

NOTES
TO FINANCIAL STATEMENTS

DECEMBER
31, 2008



NOTE 1 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES



A summary of significant accounting policies of QualSec (A
Development Stage Company) (the Company) is presented to assist in understanding
the Companys financial statements. The accounting policies presented in these
footnotes conform to accounting principles generally accepted in the United
States of America and have been consistently applied in the preparation of the
accompanying financial statements. These financial statements and notes are
representations of the Companys management who are responsible for their
integrity and objectivity. The Company has not realized revenues from its
planned principal business purpose and is considered to be in its development
state in accordance with SFAS 7, Accounting and Reporting by Development
State Enterprises.



Organization  QualSec (the Company) was organized under
the laws of the State of Wyoming on October 18, 2006. The Company is developing
an electronic olfactory device.  The Company has not yet generated any
revenues from planned principal operations and is considered a development stage
company as defined in Statement of Financial Accounting Standards No. 7.
 The Company has, at the present time, not paid any dividends and any
dividends that may be paid in the future will depend upon the financial
requirements of the Company and other relevant factors.



Basis of Presentation- The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that effect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reported period. Actual results could differ from those estimates. Management
further acknowledges that it is solely responsible for adopting sound accounting
practices, establishing and maintaining a system of internal accounting control
and preventing and detecting fraud. The Companys system of internal accounting
control is designed to assure, among other items, that (1) recorded transactions
are valid; (2) all valid transactions are recorded and (3) transactions are
recorded in the period in a timely manner to produce financial statements which
present fairly the financial condition,



Fiscal Year - The Companys fiscal year-end is December
31.



Cash and Cash Equivalents - The Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.



Advertising Costs -Advertising costs are charged to
operations when incurred.  The Company has not yet incurred any advertising
costs.



Stock-Based Compensation - The Company has one
stock-based employee compensation plan [See Note 2].  The Company
accounts for its plan under the recognition and measurement principles of SFAS
123(R), Share Based Payment and related Interpretations.  The Company has
not issued any options or warrants as of June September 30, 2008.



Offering Costs  Costs of issuing stock are deducted from
the proceeds of the issue. These are costs of the Companys Regulation A
Offering. For the year ended December 31, 2007, $1,099 in costs associated with
the Companys Regulation A Offering were deducted from the proceeds.  There
were no additional offering costs for the amounts raised as of December 31,
2008.



Loss Per Share - The Company computes net loss per share in
accordance with SFAS No. 128, Earnings per Share (SFAS 128) and SEC Staff
Accounting Bulletin No. 98 (SAB 98). Under the provisions of SFAS 128 and SAB
98, basic net loss per share is computed by dividing the net loss available to
common stockholders for the period by the weighted average number of shares of
common stock outstanding during the period. The calculation of diluted net loss
per share gives effect to common stock equivalents; however, potential common
shares are excluded if their effect is anti-dilutive. For the period from
October 18, 2006 (Date of inception) through December 31, 2008, the Company had
no potentially dilutive securities.





QUALSEC

(A
Development Stage Company)

NOTES
TO  FINANCIAL STATEMENTS

DECEMBER
31, 2008



NOTE 1 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)



Income Taxes -The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards No. 109 Accounting
for Income Taxes [See Note 4].



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



Financial Instruments -Fair value estimates discussed
herein are based upon certain market assumptions and pertinent information
available to management as of December 31, 2008. The respective carrying value
of certain on-balance-sheet financial instruments approximate their fair values.
These financial instruments include cash, accounts payable, accrued expenses and
notes payable. Fair values were assumed to approximate carrying values for these
financial instruments because they are short term in nature and their carrying
amounts approximate fair values.



Accrued Vacation Liabilities  Each of the two employees
are entitled to three weeks paid vacation per year.  The amount of accrued
vacation is accrued as a liability pursuant to FAS No. 43, Accounting for
Compensated Absences. As of December 31, 2008, the amount of accrued vacation
was $34,800.



Recently Enacted Accounting Standards In September 2006,
the FASB issued Statement No. 157, Fair Value Measurements (FAS 157), which
defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. The provisions of FAS 157
became effective as of the beginning of our 2008 fiscal year. The adoption of
FAS 157 did not have a significant impact on our financial statements.



In September 2006, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements (SAB 108), which addresses how to quantify the effect of financial
statement errors. The provisions of SAB 108 became effective as of the end of
our 2007 fiscal year. The adoption of SAB 108 did not have a significant impact
on our financial statements.



In February 2007, the FASB issued Statement No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities, including an
amendment of FASB Statement No. 115 (FAS 159). FAS 159 permits companies to
choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value and
establishes presentation and disclosure requirements designed to facilitate
comparison between companies that choose different measurement attributes for
similar types of assets and liabilities. The provisions of FAS 159 become
effective as of the beginning of our 2009 fiscal year. We are currently
evaluating the impact that FAS 159 will have on our financial statements.



In December 2007, the FASB issued SFAS 160, Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB No. 51
which applies to all entities that prepare consolidated financial statements,
except not-for-profit organizations, but will affect only those entities that
have an outstanding noncontrolling interest in one or more subsidiaries or that
deconsolidate a subsidiary. The statement is effective for annual periods
beginning after December 15, 2008.



In March 2008, the FASB issued SFAS No. 161, Disclosures
about Derivative Instruments and Hedging Activities  an amendment of FASB
Statement No. 133, (SFAS 161) as amended and interpreted, which requires
enhanced disclosures about an entitys derivative and hedging activities and
thereby improves the transparency of financial reporting. Disclosing the fair
values of derivative instruments and their gains and losses in a tabular format
provides a more complete picture of the location in an entitys financial
statements of both the derivative positions existing at period end and the
effect of using derivatives during the reporting period. Entities are required
to provide enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entitys financial
position, financial performance, and cash flows. SFAS No. 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. Early adoption is permitted. We are currently evaluating the
impact that FAS 161 will have on our financial statements.

QUALSEC

(A
Development Stage Company)

NOTES
TO  FINANCIAL STATEMENTS

DECEMBER
31, 2008



NOTE 1 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)



Recently Enacted Accounting Standards  (continued) In May 2008, the FASB issued SFAS No. 163, Accounting for Financial
Guarantee Insurance Contracts  an interpretation of FASB Statement No. 60.
 SFAS 163 requires that an insurance enterprise recognize a claim liability
prior to an event of default (insured event) when there is evidence that credit
deterioration has occurred in an insured financial obligation.  This
Statement also clarifies how Statement 60 applies to financial guarantee
insurance contracts, including the recognition and measurement to be used to
account for premium revenue and claim liabilities. Those clarifications will
increase comparability in financial reporting of financial guarantee insurance
contracts by insurance enterprises. This Statement requires expanded disclosures
about financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements.  SFAS 163 will be effective for financial
statements issued for fiscal years beginning after December 15, 2008.  The
Company does not expect the adoption of SFAS 163 will have a material impact on
its financial condition or results of operation.



NOTE 2 - CAPITAL STOCK



Common Stock -The Company has authorized an unlimited
number of shares of no par value common stock and preferred stock.  In
October 2006, in connection with its organization, the Company issued
140,000,000 shares of common stock to two individuals who are
officers/shareholders of the Company.  The shares were issued for
technology rights valued at $1.  In July and September 2007, the Company
sold 11,450,000 shares in its Regulation A placement at a price of $.01 per
share.  Net proceeds were $113,401.  In January 2008, the Company sold
the remaining 18,550,000 shares requested in the offering for proceeds of
$185,500.



In October, 2008, the Company sold 109,400,000 shares of common
stock to an investor group for $200,000 cash.  The two officers and
directors each cancelled 54,700,000 shares in connection with the financing;
therefore the total shares outstanding were unchanged.



Stock Option Plan - In October 2006, the Board of
Directors adopted and the stockholders at that time approved the 2006 Stock
Option Plan (the Plan).  The Plan provides for the granting of qualified
and non-qualified stock options to purchase up to 20,000,000 shares of common
stock to directors, officers, advisors and employees of the Company as well as
to employees of companies that do business with the Company.  Awards under
the plan will be granted as determined by the Stock Option Committee of the
Board of Directors.  The Plan limits awards to directors, officers and
employees to $100,000 of compensation per year.  The options will expire
after 10 years or 5 years if the option holder owns at least 10% of the common
stock of the Company.  The exercise price of a non-qualified option must be
at least 85% of the market price.  The exercise price of a qualified option
must be at least equal to the market price or 110% of the market price if the
option holder owns at least 10% of the common stock of the Company.



At December 31, 2008, fully vested awards consisting of options to
purchase 4,000,000 shares at a price of $.01 per share were granted.  In
accordance with SFAS No. 123 (R), the Company recognized the entire fair value
of the options in the statement of operations since they vested immediately.
Fair value of $30,000 was determined using the Black Scholes option pricing
model based on the following assumptions: risk free interest rate of 2.75%, no
dividend yield, volatility of 82% and expected life of the options of 5 years,
which are due to expire May 1, 2013.  Total awards available to be granted
from the Plan amounted to 16,000,000 shares.



15



QUALSEC

(A
Development Stage Company)

NOTES
TO  FINANCIAL STATEMENTS

DECEMBER
31, 2008



NOTE
3 - EQUIPMENT



Furniture
and 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



Furniture
and equipment are depreciated on a straight line basis over their estimated
useful life; 3 years for all equipment and 5 years for the furniture acquired to
date.



Depreciation
expense 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 a net operating
loss carryforwards of approximately $1,052,600 and $555,200 which may be applied
against future taxable income and which begins to expire in 2027. Components of
net deferred tax assets, including a valuation allowance, are as follows at
December 31:



|                                | 2008                          | 2007                         
|------------------------------- | ----------------------------- | -----------------------------
|Deferred
tax assets:            |                               |                              
|Net
operating loss carryforward | $
                357,881     | $
                187,402    
|Accrued
liabilities             | 170,610                       | 83,980                       
|Depreciation                    | 210                           | 253                          
|                                | 528,701                       | 271,635                      
|                                |                               |                              
|Less:
valuation allowance       | 528,701                       | 271,635                      
|                                |                               |                              
|Net
deferred tax assets:        | $
                          - | $
                          -



The valuation allowance for deferred tax assets as of December 31,
2008 and 2007 was $528,701 and $271,635, respectively.  In assessing the
recovery of the deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The amount of and ultimate realization of the benefits from the
operating loss carryforwards for income tax purposes is dependent, in part, upon
the tax laws in effect, the future earnings of the Company, and other future
events, the effects of which cannot be determined.  Because of the
uncertainty surrounding the realization of the net deferred tax assets, the
Company has established a valuation allowance equal to their tax effect and,
therefore, no deferred tax asset has been recognized as of December 31, 2008 and
2007.



The Financial Accounting Standards Board has published FASB
Interpretation 48 (FIN 48), Accounting for Uncertainty in Income Taxes, to
address the non-comparability in reporting tax assets and liabilities resulting
from a lack of specific guidance in FASB Statement of Financial Accounting
Standards No. 109 (SFAS 109), Accounting for Income Taxes, on the uncertainty
in income taxes recognized in an enterprises financial statements.
 Specifically, FIN 48 prescribes (a) a consistent recognition threshold and
(b) a measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return, and
provides related guidance on derecognition, classification, interest and
penalties, accounting interim periods, disclosure and transition.  To the
extent interest and penalties would be assessed by taxing authorities of any
underpayment of income taxes, such amounts would be accrued and classified as a
component of income tax expenses on the  statement of operations. FIN 48
will apply to fiscal years beginning after December 15, 2006, with earlier
adoption permitted.  The Company has completed its evaluation of the
effects of FIN 48 and has concluded that the adoption of FIN 48 did not impact
the financial statements for the period ended December 31, 2008.

QUALSEC

(A
Development Stage Company)

NOTES
TO  FINANCIAL STATEMENTS

DECEMBER
31, 2008



NOTE 5  RELATED PARTY TRANSACTIONS



An officer and shareholder of the Company advanced $3,000 to the
Company in November 2006 which was repaid in the same month. The same officer
and shareholder loaned $80,000 to the Company on an interest free basis in
November 2006, and advanced an additional $120,000 during the year ended
December 31, 2007. The loan is represented by a promissory note which is due
upon completion of the offering of common stock, which closed in January 2008.
 The Company repaid $184,500 of the Note in January 2008, and $8,526 in
December 2008, leaving a balance of $6,974 as of December 31, 2008.  The
officer/shareholder is entitled to receive interest of 8% per annum on the note
commencing on July 1, 2007,  and, to the extent such note is unpaid, it
shall be convertible into common stock at 75% of the initial trading price of
Company common stock.   Interest of $0 (zero) was accrued and unpaid
on the note as of December 31, 2008.



We borrowed $30,000 from an investment fund on March 12, 2008
under a convertible promissory note due December 31, 2008, and bearing 8%
interest. The note is convertible into common stock at $.01 per share. An
additional $100,000 was loaned on the same terms on May 27, 2008. The fund is
controlled by the brother of an officer/director.  Interest of $6,653 was
accrued and unpaid on the notes as of December 31, 2008.



The Company determined that the convertible notes do not have a
beneficial conversion feature since the market price of the stock is
approximately $.01 per share; the conversion price is the same.



Pursuant to three-year employment contracts dated November 27,
2006, the officers are both entitled to compensation of $150,000 per annum;
however, the compensation payable to Mr. Hand is deferred until such time as the
Company has cash available for paying such compensation, and Dr. Kelton is
deferring $78,000 ($6,500 per month) of such annual compensation on the same
basis.  In March 2008, Dr. Kelton agreed to defer an additional $4,000 per
month in salary. On September 1, 2008, Dr. Kelton agreed to defer all of his
salary.  In September 2008, Dr. Kelton entered into a settlement agreement
terminating his employment agreement.  As of December 31, 2008, the total
deferred compensation was $467,001, including $32,866 for accrued payroll taxes
related to the deferred compensation.



NOTE 6 - GOING CONCERN



The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles in the United States of
America, which contemplate continuation of the Company as a going concern.
 However, the Company was only recently formed and has not yet been
successful in establishing profitable operations.  These factors raise
substantial doubt about the ability of the Company to continue as a going
concern.  In this regard, management is proposing to raise any necessary
additional funds not provided by operations through loans or through additional
sales of their common stock.  There is no assurance that the Company will
be successful in raising this additional capital or in achieving profitable
operations.  The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might result from this
uncertainty.



The Company has experienced losses from operations. For the twelve
months ended December 31, 2008 and 2007, the Company incurred net losses of
$497,413 and $522,856, respectively.  Additionally, the Company has an
aggregate accumulated deficit from Inception (October 18, 2006) through December
31, 2008 of $1,052,595.



NOTE 7  LITIGATION



As of December 31, 2008, the Company is not aware of any current
or pending litigation which may affect the Companys operations.





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