UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB  (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, 2007  [
] Transition Report Pursuant to Section
13 or 15(d) of the Securities and  Exchange Act of 1934 For the transition
period from  __________to _________   QUALSEC (Name of small business issuer in its
charter)  Wyoming 20-5776355 (State or other jurisdiction
of (IRS Employer Identi- incorporation or
organization) fication No.)  1770 N. Research Pkwy. Suite 181, North Logan, Utah 84341  (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-B 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-KSB
or any amendment to this Form 10-KSB. [  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, 2007 was not determinable because the common stock does not trade
on any market.  The number of shares
outstanding of the issuer's classes of Common Stock as of  March 30, 2008:  Common Stock, no Par Value
 170,000,000  Shares  Transitional Small Business Disclosure Format
          YES
           NO
  X  DOCUMENTS INCORPORATED BY REFERENCE:
 NONE  0  PART
I  Item
1. DESCRIPTION OF
BUSINESS  When used in this Form
10-KSB, 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-KSB.  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. Competiors 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 no 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. The common stock is not approved for trading on
any market. QualSec will apply for trading initially on the Pink Sheets LLC, but
listing approval is not guaranteed and could require months. The Pink Sheets is
a privately owned electronic inter-dealer system and does not require that a
public company provide significant ongoing financial disclosure about its
business. Listing on the Pink Sheets does not constitute any endorsement or
approval of a listed company or its securities, and the Pink Sheets LLC does not
review or monitor an issuers activities.   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 requires 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.  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 1770 N. Research Parkway, Suite
181, North Logan, Utah 84341.  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 provide 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 opinon 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 prodict, 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
two employees, Dr. Kelton and Mr. Hand. 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
2. DESCRIPTION OF
PROPERTY  We are currently renting
office space in North Logan Utah for $500 per month. We believe this space is
sufficient for the foreseeable future.  Item
3. LEGAL
PROCEEDINGS  Not Applicable.   1  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, 2007.  PART II   Item 5. MARKET FOR COMMON
EQUITY, RELATED STOCK­HOLDER MATTERS AND COMMON STOCK REPURCHASES  Market Information and Sales of
Unregistered Securities.  The Company's Common Stock has never
traded. As of December 31, 2007 there were 36 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.
 There has been no trading of the common stock.  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 loaned Qualsec $120,000 and $80,000 during the years
ended December 31, 2007 and 2006, respectively. The amount of $185,500 (the
amount raised in fiscal 2008) was repaid to him during the 1st
quarter of fiscal 2008.  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 $1,099, 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 salaries.    Company repurchases of common stock
during the year ended December 31, 2007.  There were no Company
repurchases of common stock during the year ended December 31, 2007.     2   Equity Compensation
Plans  Equity Compensation
Plan Information as of December 31, 2007 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 options,          
  (excluding Securities Options, warrants warrants and reflected in Plan Category and rights rights column (a)  Equity compensation  - -
                                      20,000,000 Plans approved by Security holders  Equity compensation -  - -  Plans not approved By Security holders   Total - - 20,000,000  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, 2007.  All issuances have been
disclosed in the Companys prior periodic filings.  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  3  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.  Item 6. MANAGEMENT'S DISCUSSION
AND ANALYSIS OR PLAN OF OPERATIONS  In 2007, we raised net
proceeds of $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 $185,500, which was used to repay the loan in part.
The remaining $14,500 owed to the officer and director, plus accrued simple
interest of $13,833 as of December 31, 2007 is payable  with interest at 8%
convertible into common stock at 75% of the initial trading price of QualSec
common stock. The common stock has not yet traded; therefore, we cannot predict
at this time what the conversion rate will be or the number of shares issuable
upon conversion of this note.  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 18
months after receipt of the initial funding of $300,000, and receipt of the
additional $4.5 million in financing commencing 6 months thereafter, 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 cannot expect to facilitate firm contracts without a prototype.  We could encounter
delays in obtaining FDA clearance for our device if we cannot prepare the
required documentation for filing of the 510(k).  Any delay will require
that we raise additional equity funding in order to continue operations. We do
not have any agreements or understandings for any such additional financing.  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.    4  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, 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 7. FINANCIAL
STATEMENTS  Our
financial statements are appended to the end of this report.  Item 8. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNT­ING AND FINANCIAL
DISCLOSURE  Not
applicable.  Item
8A(T). CONTROLS AND
PROCEDURES  As of the end of the
period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure and procedures (as defined in Exchange
Act Rule 13a-15(e) and 15d-15(e)).  Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that as of the end of
the period covered by this Annual Report on Form 10-KSB our disclosure controls
and procedures were effective to enable us to accurately record, process,
summarize and report certain information required to be included in the
Companys periodic SEC filings within the required time periods.  There were no changes in
our internal control over financial reporting that occurred during the most
recent fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.  This annual report does
not include a report of managements assessment regarding internal control over
financial reporting or an attestation report of the Companys registered public
accounting firm due to a transition period established by rules of the
Securities and Exchange Commission for newly public companies.  Item
8B. OTHER
INFORMATION  5   Not
applicable   Item 9. DIRECTORS, EXECUTIVE
OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT  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.  Beginning in September,
2006, Mr. Joel Hand, age 48, has devoted his efforts full time to the
development of QualSec. He is also a director 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.  Dr. Arden A. Kelton, age
69,  has been Director of Research, Chief Operating Officer and Director
since inception of QualSec in October 2006. From 2003 to September 2006 he was
retired and was developing the QualSec technology.  From 2002 to 2003, he
was CEO and Director of Osprey Data Systems Corporation, San Clemente,
California.  He developed an electronic-nose company with newly developed
and demonstrated technology and ready-to-manufacture products with applications
in homeland security, healthcare, petrochemical, food processing, law
enforcement, agricultural and other industries.  From 2001 to 2002, he was
CEO and Director of NeoPax, Inc, based in North Logan, Utah.   This
Biotech company developed molecular technology for capturing pathogenic bacteria
and toxins for commercial, military and industrial applications.  From 1998
to 2001 He was interim President and was CEO, and Director of Apomyx, Inc.
 Based in North Logan, Utah, Apomyx developed new technology for inducing
apomixes in commercial crops.  From 1995 to 1997, Dr.
Kelton served as President of DNA Technologies Inc. (DNA inks used for
anti-counterfeiting). From 1993 to 1995, he served as President of Nucleic
Assays Corp., (DNA/RNA assays for detection of infectious and genetic diseases).
In 1992 and 1993, Dr. Kelton served as President and arranged the sale of
Synorex Incorporated (transdermal drug delivery), which had ceased business
operations prior to Dr. Kelton's association. From 1988 to 1991, he served as
president of Lamplighter Industries Inc. (manufactured and sold
electroluminescent lighting products). In 1982, Dr. Kelton founded Environmental
Diagnostics Inc. (renamed Editek Inc.) (immunoassay diagnostic screening tests
for agricultural and environmental contaminants), and he served as its President
until 1987. In 1985, Environmental Diagnostics formed Disease Detection
International Inc. (immunoassay tests for detection of infectious diseases in
humans and animals) where Dr. Kelton served as President from 1985 to 1987. In
1979, Dr. Kelton founded Immutron Inc. (automated immunoassay diagnostic system)
since renamed Spectrum Laboratories Inc., and served as its President until
1982. Prior to 1979, Dr. Kelton was employed as a principal staff engineer and
scientist by McDonnell-Douglas Astronautics involved primarily in the management
and financing of biotechnology and basic research projects. Dr. Kelton is a
co-inventor on five patents.  Dr. Kelton received his
Ph.D. degree in Medical Physics from UCLA in 1969, M.S. in Radiological Science
from UCLA in 1966, and B.S. in Physics and Mathematics from the University of
Wisconsin at Eau Claire in 1959.   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, 2008.  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.   Item 10. EXECUTIVE COMPENSATION  The following table sets
forth the cash compensation of QualSec's executive officers and directors during
each of the two years since inception.  Only one months compensation was
paid or accrued in 2006, as QualSec was incorporated in October 2006.
  The remuneration described in the table does not include the cost of
benefits  6  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 Name and Office Salary Deferred
Salary Salary
            Deferred
Salary  Joel Hand,  President And Chief Financial
Officer -- $ 12,500 -- $ 150,000  Dr. Arden A. Kelton $6,000 $ 6,500 $ 72,000 $ 78,000    Option/SAR Grants in Year ended December 31, 2007 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 ($/Sh) Date  Arden Kelton,
PhD. 0 0 -- -- Joel Hand 0 0 -- --   Aggregated Option/SAR Exercises and
Fiscal Year End Option/SAR Values   Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options/SARs at Options/SARs at Fiscal Year End Fiscal Year End Shares Acquired Exercisable/ Exercisable/ Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable  Arden Kelton PhD.
      - -- -- -- Joel Hand - -- -- --  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. The employee will
be entitled to reimbursement of employment related expenses and any relocation
expenses. Although QualSec agreed to provide to each of its officers an auto
allowance of approximately $800 per month; Joel Hand discontinued receipt of the
auto allowance during 2007.  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 no shares are issued.  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 11. 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 30, 2008.  Percentage Name of Number of of Outstanding Stockholder Shares Owned Common Stock  Arden A.
Kelton, PhD. 70,000,000 41.2%   Joel
Hand(1) 70,000,000 41.2%   All officers and directors as a group (2 persons) 140,000,000 92.4%  (1) Does not include shares
issuable upon conversion of a promissory note in the amount of $14,500 plus
accrued interest on this amount and prior amounts outstanding, totaling $13,833
as of December 31, 2007. The conversion rate is 75% of QualSecs initial trading
price, and since the common stock has not yet traded the number of shares
issuable upon conversion cannot be ascertained at this time.    Item 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS  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 $14,500 of this loan in January 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.
Interest of $8,000 was accrued and unpaid on the note as of December 31,
2007.   PART IV  7   Item
13. EXHIBITS   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)   21. Subsidiaries of the small business
issuer-None.  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. Filed herewith.  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. Filed herewith.  (1) Incorporated by reference to the Exhibit filed with
the registrant's offering statement on Form 1-A, file number 024-10160 (the
"Form 1-A") and also with Amendment no. 2. to the Form 1-A. (2) Incorporated by reference to the Exhibit filed with
Amendment nos. 1 and 2 of the Form 1-A. (3) Incorporated by reference to the registrant's
registration statement on Form 10-SB, file number 0-52907.   All other Exhibits called for by Rule 601 of Regulation
S-B are not applicable to this filing.  (b) Financial Statement Schedules  All schedules are omitted because they
are not applicable or because the required information is included in the
financial statements or notes thereto.   Item
14.Principal
Accountant  Fees and
Services.  Audit Fees  Our principal accountants, De Joya Griffith
& Company, LLC billed us $8,000 and $0, respectively,  for audit and
review  fees during  the fiscal years ended December 31, 2007 and
2006.   Less than 50% of the hours expended by our
auditors on the audit for the year ended December 31, 2007 were performed by
persons other than the above accounting firms  full time employees.   Audit related Fees 8 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.  SIGNATURES    Pursuant to the requirements of the
Securities and Exchange  Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities
indicated on March 30, 2008.  By:
    /s/ Joel Hand  President and Chief Financial
Officer Joel
Hand (principal executive and financial
officer) and Director  By:
    /s/ Dr. Arden A. Kelton  Director of Research, Chief
Operating Dr.Arden
A. Kelton Officer and Director  9    10  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    11  QUALSEC [A Development Stage Company] BALANCE SHEETS   As of As of  December
31, December 31, 2007 2006 (Audited) (Audited) ASSETS  Current Assets: Cash $ 34,724 $
          65,484 Total
current assets 34,724 65,484  Property and equipment,
net 2,942 2,144  Other assets Technology
rights 1
      1  Total
assets $37,667      $
          68,129  LIABILITIES AND STOCKHOLDERS
DEFICIT  Current Liabilities:  Accounts payable and accrued
liabilities $ 18,612
       $
               505 Deferred compensation
payable-related party 247,001
                    19,948 Note payable  related party -
                     80,000 Convertible note payable -
related party 200,000
                              - Accrued interest - related
party  13,833
         - Total
current liabilities  479,446
        100,453  Total
liabilities  479,466
         100,453  STOCKHOLDERS' DEFICIT: 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, 151,450,000 shares issued and outstanding  113,402
                              1  Deficit accumulated during the development
stage  (555,181)
        (32,325) Total
stockholders' deficit  (441,779)      (32,324)  Total liabilities and
stockholders deficit $ 37,667
        $
       68,129     The accompanying notes are an integral part
of this financial statement.  12  QUALSEC [A Development
Stage Company] STATEMENTS OF
OPERATIONS     For the  From
Inception From 
nception  Year
Ended (Oct.18,
2006) (Oct.18,
2006) December
31, Through Through 2007 Dec.
31, 2006 Dec.
31, 2007  (Audited)
           (Audited)
                   (Audited)  REVENUE $ -- $ -- $ --  EXPENSE General and
administrative 44,791 5,885 50,676 Payroll
expense 324,232 26,440 350,672 Research and
development 140,000 -- 140,000  Total
operating expenses 509,023 32,325 541,348  NET OPERATING LOSS  (509,023) (32,325) (541,348)   OTHER EXPENSE Interest
expense  related party (13,833) -- (13,833)   NET LOSS $ (522,856) $ (32,325) $ (555,181)  BASIC LOSS PER COMMON
SHARE $ (.00) $ (.00) Basic weighted average number of shares
outstanding 145,920,137 140,000,000                The accompanying notes are
an integral part of this financial statement.  13  QUALSEC [A Development Stage
Company] STATEMENT OF
STOCKHOLDERS' DEFICIT FROM INCEPTION (OCTOBER 18, 2006)
THROUGH DECEMBER 31, 2007  (AUDITED)    Deficit Accumulated Preferred
Stock Common
Stock During the Development Shares Amount Shares Amount Stage Total  BALANCE, October 18, 2006 - $ - - $ - $ - $ -  Common stock issued for Technology rights of $1 or $.000000007 per share, October 18,
2006 - - 140,000,000 1 - 1  Net loss - - - - (32,325) (32,325)  BALANCE, December 31, 2006 - - 140,000,000 $ 1 (32,325) (32,324)   Issuance of stock for cash - - 11,450,000 113,401 - 113,401  Net loss - - - - (522,856) (522,856)  BALANCE, December 31, 2007 - $ - 151,450,000 $ 113,402 $ (555,181) $ (441,779)             The
accompanying notes are an integral part of this financial statement.  14  QUALSEC [A Development Stage
Company] STATEMENTS OF CASH
FLOWS   For the From
Inception From Inception Year
Ended (Oct. 18,
2006) (Oct.
18,2006) December
31, Through Through 2007 Dec. 31,
2006 Dec.31,2007  (Audited) (Audited) (Audited) Cash Flows from Operating Activities: Net loss $ (522,856) $ (32,325) $ (555,181) Adjustments to reconcile net loss to net cash used by
operating activities: Depreciation 744 51 795 Changes in operating assets and
liabilities (Increase)
decrease in prepaid expenses 500 (500) -- Increase
(decrease) in accounts payable 18,107 505 18,612 Increase in
accrued interest - related party 13,833 -- 13,833 Increase in deferred compensation payable-related
party 227,053 19,948 247,001  Net cash
used by operating activities (262,619) (12,321) (274,940)  Cash Flows from Investing Activities: Purchase of
equipment (1,542) (2,195) (3,737)  Net cash
used by investing activities (1,542) (2,195) (3,737)  Cash Flows from Financing Activities Issuance of
stock for cash 113,401 -- 113,401 Proceeds
from loan - related party -- 3,000 3,000 Repayment
of loan - related party --  (3,000)                    
(3,000) Proceeds
from note payable - related party 120,000 80,000 200,000  Net cash
provided by financing activities 233,401 80,000 313,402  Net increase in cash 30,760 65,484 34,724  Cash, at beginning of
period 65,484 -- --  Cash, at end of
period $ 34,724 $ 65,484 $ 34,724  Supplemental Disclosures 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 of this financial statement.  15   QUALSEC [A Development Stage
Company] NOTES TO  FINANCIAL STATEMENTS (AUDITED)  NOTE 1 - SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES  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.  Fiscal Year - The Companys fiscal year-end is December
31.  Reclassification -Certain reclassifications, which have no
effect on net loss, have been made in the prior period financial statements to
conform to the current presentation. Specifically, we have presented payroll
expenses separate from general and administrative expenses.  Cash and Cash Equivalents - The Company considers all
highly liquid debt 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 stock options or warrants.  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 gross proceeds of
$114,500.  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].  Loss Per Share - The computation of loss per share is based
on the weighted average number of shares outstanding during the period presented
in accordance with Statement of Financial Accounting Standards No. 128,
Earnings Per Share [See Note 7].  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.     QUALSEC [A Development Stage
Company] NOTES TO  FINANCIAL STATEMENTS (AUDITED)  Financial Instruments -Fair value estimates discussed
herein are based upon certain market assumptions and pertinent information
available to management as of December 31, 2007. The respective carrying value
of certain on-balance-sheet financial instruments approximate their fair values.
These financial instruments include cash, receivables, 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 weeks 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, 2007, the Company has accrued $18,562.
No accrued vacation was recorded at December 31, 2006.  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
become effective as of the beginning of our 2008 fiscal year. We are currently
evaluating the impact that FAS 157 will have 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 become effective as of the end of
our 2007 fiscal year. We do not expect the adoption of SAB 108 to 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.    QUALSEC [A Development Stage
Company] NOTES TO  FINANCIAL STATEMENTS (AUDITED)  Recently Enacted Accounting Standards 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.  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 in its Regulation A placement at a price of $.01 per share.
 Gross proceeds were $114,500 which was reduced by offering costs totaling
$1,099 (See Note 1  Summary of Significant Accounting Policies  Offering
Costs for additional information).  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, 2007, no awards had been made and total awards available to be
granted from the Plan amounted to 20,000,000 shares.      QUALSEC [A Development Stage
Company] NOTES TO  FINANCIAL STATEMENTS (AUDITED)  NOTE 3  -
EQUIPMENT  Furniture
and equipment consists of the following at December 31, 2007 and 2006:  2007 2006 Equipment $
      2,195 $
   2,195 Furniture 1,542 - Less
accumulated depreciation
            (795) (51)  $
2,942 $2,144  Furniture
and equipment are depreciated on a straight line basis over their estimated
useful life, which is 3 years for all equipment and 5 years for the furniture
acquired to date.  Depreciation
expense for the years ended December 31, 2007 and 2006 was $744 and $51,
   respectively.  NOTE 4 - INCOME TAXES   As of
December 31, 2007 and 2006, the Company had a net operating loss carryforward of
approximately $555,200 and $32,300, respectively. This loss will be available to
offset future taxable income. If not used, this carryforward will expire in
2027. Components of net deferred tax assets, including a valuation allowance,
are as follows at December 31:  2007 2006 Deferred
Tax Assets: Net
operating loss carryforward $ 187,402 $ 10,991 Deferred
salary 83,980 - Depreciation 253 17 271,635 11,008  Less:
 Valuation allowance 271,635 11,008  Net
Deferred Tax Assets: $ - $ -  The valuation allowance for deferred tax assets as of December 31,
2007 and 2006 was $271,635 and $11,008, 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 ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income in the periods in which those temporary
differences become deductible.  Management considers the scheduled
reversals of future deferred tax assets, projected future taxable income, and
tax planning strategies in   QUALSEC [A Development Stage
Company] NOTES TO  FINANCIAL STATEMENTS (AUDITED)  NOTE 4 - INCOME TAXES  (continued)  making this assessment.  As a result, management determined
it was more likely than not the deferred tax assets would not be realized as of
December 31, 2007 and 2006 and, accordingly, recorded the full valuation
allowance.  Reconciliation
between the statutory rate and the effective tax rate is as follows at December
         31: 2007 2006 Effective
Tax Rate Reconciliation: Federal
statutory tax rate 34.0% 34.0% Change
in valuation allowance (34.0%) (34.0%) Effective
tax rate: 0.0% 0.0%    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, 2007.   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 a proposed offering of common stock, which closed in January
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 QUALSEC [A Development Stage
Company] NOTES TO  FINANCIAL STATEMENTS (AUDITED)  NOTE 5  RELATED PARTY TRANSACTIONS  (continued)  convertible into common stock at 75% of the initial trading price
of Company common stock.  Although the loan is non-interest bearing, the Company has elected
to accrue interest at 8%, determined by the percentage that is required to start
July 1, 2007, per the funding letter in the prior 10-KSB. Accrued interest on
this loan is $13,833 as of December 31, 2007. No interest was accrued as of
December 31, 2006.  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 obtained funding in excess of $300,000, and Dr. Kelton is deferring
$78,000 of such annual compensation on the same basis. As of December 31, 2007
and 2006, the total deferred compensation was $247,001 and $19,984. (See Note 7
 Subsequent Event for additional information.)  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 years
ended December 31, 2007 and 2006, the Company incurred net losses of $522,856
and $32,325, respectively.  Additionally, the Company has an aggregate
accumulated deficit for the year ended December 31, 2007 of $555,181.  NOTE 7 - NET LOSS PER COMMON SHARE  The Company computes net loss per share in accordance with SFAS
No. 128, Earnings per Shares (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. From Inception (October 18, 2006) through December 31,
2007, the Company had no potentially dilutive securities.   QUALSEC [A Development Stage
Company] NOTES TO  FINANCIAL STATEMENTS (AUDITED)   NOTE 8  LITIGATION  As of December 31, 2007, the Company is not aware of any current
or pending litigation which may affect the Companys operations.   NOTE 9  SUBSEQUENT EVENT  In January 2008, the Company sold the
remaining 18,550,000 shares offered in its Regulation A Placement for net
proceeds of $185,500, and repaid $185,500 of the $200,000 promissory note owed
to an officer and director.  16