QUALSEC - FORM 10-Q - May 20, 2011

Attached files

file	filename
EX-31.01 - VITAMINSPICE 10Q, CERTIFICATION 302 - QUALSEC	vitaminspiceexh31_01.htm
EX-32.01 - VITAMINSPICE 10Q, CERTIFICATION 906 - QUALSEC	vitaminspiceexh32_01.htm

Securities and Exchange Commission

Washington, D.C.

FORM 10-Q

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

000-52907

(Commission file number)

VitaminSpice

(Exact name of small business issuer as specified in its charter)

Wyoming	20-5776355
(State or other jurisdiction	(IRS Employer
of incorporation or organization)	Identification No.)

996 Old Eagle School Road, Suite 1102

Wayne, Pennsylvania 19087

(Address of principal executive offices)

____________________________________________

(Former Address of principal executive offices) (Zip Code)

(484) 367 7401

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 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 o No x

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. 155,234,664 shares of Common Stock, no par value, were issued and outstanding, as of May 20, 2011. Of that amount, 140,528,535 are subject to restriction and 14,706,129 are free trading.

Transitional Small Business Disclosure Format (check one) Yes o No x

Indicate if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

VITAMINSPICE

INDEX

	Page

PART I. FINANCIAL INFORMATION	3

ITEM 1 – Condensed Consolidated Financial Statements (Unaudited):
Balance Sheets as of March 31, 2011 and December 31, 2010	3
Statements of Operations for the Three Months Ended March 31, 2011 and 2010	4
Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010	5
Notes to Unaudited Condensed Consolidated Financial Statements	6

ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

ITEM 4 – Controls and Procedures	18

PART II. OTHER INFORMATION	19

ITEM 1 – Legal Proceedings	19

Signature	19

Officer Certification

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

VITAMINSPICE

CONDENSED BALANCE SHEET

	March 31,			December 31,
	2011			2010
	(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	19,712		$	-
Accounts receivable-trade		629			491
Prepaid Interest		-			19,031
Due from officer					14,181
Inventory		32,800			10,790
TOTAL CURRENT ASSETS		53,141			44,493
TOTAL ASSETS	$	53,141		$	44,493

LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accrued interest	$	9,594		$	655
Customer deposits		25,800			16,000
Accounts payable and Accrued liabilities		53,817			65,812
Derivative liability-options and warrants		10,415,991			10,415,991
Convertible notes payable-related party		-			48,000
Notes payable		913,200			117,000
Accrued interest-related party		-			3,074
TOTAL CURRENT LIABILITIES	$	11,418,402		$	10,666,532
TOTAL LIABILITIES		11,418,402			10,666,532

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; 155,264,664 and 207,649,664 shares issued and outstanding		1,384,492			1,585,255

Accumulated deficit		(12,749,754	)		(12,207,294	)

TOTAL STOCKHOLDERS DEFICIT		(11,365,261	)		(10,622,039	)

TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT	$	53,141		$	44,493

VITAMINSPICE

STATEMENT OF OPERATIONS
(UNAUDITED)


	Three Months Ended
	March 31,
	2011			2010

REVENUES	$	629		$	901

COST OF GOODS SOLD		7,000			410

GROSS PROFIT		(6,371	)		491

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Stock options and warrants expense		-			623,279
General and administrative		471,662			396,759
Compensation expense		75,000			262,060
Research and development		-			-

TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		546,662			1,282,098

NET OPERATING LOSS		(553,033	)		(1,281,606	)

OTHER INCOME (EXPENSE)
Interest expense		(1,690	)		(3,508	)
Interest expense-related party		-			(960	)
Total other income (expense)		(1,690	)		(4,528	)


NET LOSS	$	(554,723	)	$	(1,286,134	)

LOSS PER COMMON SHARE-BASIC	$	(0.00	)	$	(0.01	)

BASIC WEIGHTED AVERAGE SHARES OUTSTANDING		155,234,664			125,434,846

VITAMINSPICE

STATEMENT OF CASH FLOWS
(UNAUDITED)
	Three Months Ended, March 31,
	Three Months Ended, March 31,
	2011			2010

Cash Flows from Operating Activities:
Net loss	$	(554,723	)	$	(1,286,134	)
Adjustments to reconcile net loss to net cash used by operating activities:
Due from officer		-			-
Inventory		32,800			-
Changes in assets and liabilities:
Increase (decrease) in accounts payable and accrued liabilities		(11,995	)		30,545
(Increase) decrease in accounts receivable		(138	)		(491	)
(Increase) in prepaid interest		(19,031	)		(23,437	)
Increase in accrued interest		-			1,665
(Increase) in derivative liability		-			623,279
Net cash used by operating activities		(553,087	)		(654,573	)
Cash Flows from Financing Activities:
Issuance of Stock for cash		20,000			75,000
Stock issued for services		-			479,913
Issuance of Stock for interest and prepaid interest		-			26,250
Proceeds from notes payable		750,000			85,000
Proceeds from shareholder advance		-			4,000
Payments on Convertible note payable - related party		-			-
Proceeds from convertible note payable – related party					-
Issuance of shares - reverse acquisition		-			-
Net cash provided by financing activities		770,000			670,164
Net increase (decrease) in cash		19,712			15,591
Cash, at beginning of period		-			19,423
Cash, at end of period		19,712			35,014

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest		1,690			-
Income taxes					-
Supplemental Schedule of Non-cash Investing and Financing Activities:
Issuance of stock for debt conversion

VITAMINSPICE

NOTES TO UNAUDITED CONDENSED

FINANCIAL STATEMENTS

March 31, 2011

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

The Company was incorporated in Wyoming on October 18, 2006 under the name Qualsec. VitaminSpice LLC (“VitaminSpice”) was organized in April 25, 2008 as a Delaware limited liability company. All the operations are carried out through VitaminSpice which was acquired in a reverse acquisition on September 28, 2009. The acquisition is accounted for as a reverse acquisition in which VitaminSpice is deemed to be the accounting acquiror. The name of the Company was changed to VitaminSpice by the filing of a Certificate of Name Change filed with the Wyoming Secretary of State on October 26, 2009. The Company, combines proprietary blends of premium herbs and spices with essential vitamins, minerals, nutrients, and antioxidants. The Company’s formulations contain from 17% to 84% of the Recommended Daily Intake (RDI) of certain essential vitamins, minerals, nutrients, and antioxidants with no bitterness or aftertaste. The Company offers premium savory spices that enliven the palate and invigorate health through a proprietary micro-encapsulation process.

Financial Reporting

The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America. Revenues and expenses are reported on the accrual basis, which means that income is recognized as it is earned and expenses are recognized as they are incurred.

Use of Estimates

The Company’s significant estimates include reserves for slow moving inventory, allowance for doubtful accounts and accrued vacation pay. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While the Company believes that such estimates are fair when considered in conjunction with the financial statements taken as a whole, the actual amounts of such estimates, when known, will vary from these estimates. If actual results significantly differ from the Company’s estimates, the Company’s financial condition and results of operations could be materially impacted.

Cash and Cash Equivalents

Cash and cash equivalents include all interest-bearing deposits or investments with original maturities of three months or less.

Inventory

Inventory is valued at cost, using the first-in, first-out (FIFO) method of accounting. All inventory at the periods presented consists of raw materials.

VITAMINSPICE

NOTES TO UNAUDITED CONDENSED

FINANCIAL STATEMENTS

March 31, 2011

Concentration of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company maintains cash balances at one financial institution which is insured by the Federal Deposit Insurance Corporation (“FDIC”). The FDIC insured institution insures up to $100,000 on account balances. The company has not experienced any losses in such accounts.

Fair value of financial instruments

The Company's financial instruments consist primarily of cash, accounts payable and accrued expenses, and debt. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments. The estimated fair value is not necessarily indicative of the amounts the Company would realize in a current market exchange or from future earnings or cash flows.

The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The standard provides a consistent definition of fair value which focuses on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard also prioritizes, within the measurement of fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.

The three-level hierarchy for fair value measurements is defined as follows:

	●	Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;
	●	Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable or the asset or liability other than quoted prices, either directly or indirectly including inputs in markets that are not considered to be active;
	●	Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Income taxes

The Company accounts for income taxes using SFAS No. 109, "Accounting for Income Taxes," which requires recognition of deferred tax liabilities and assets for expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is recorded for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

VITAMINSPICE

NOTES TO UNAUDITED CONDENSED

FINANCIAL STATEMENTS

March 31, 2011

The Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. (FIN) 48, “Accounting for Uncertainty in Income Taxes.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 requires that the Company determine whether the benefits of the Company’s tax positions are more likely than not of being sustained upon audit based on the technical merits of the tax position. The provisions of FIN 48 also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, and disclosure. The Company did not have any unrecognized tax benefits and there was no effect on the financial condition or results of operations as a result of implementing FIN 48. The Company does not have any interest and penalties in the statement of operations for the three and nine months ended September 30, 2010 and 2009.

In May 2007, the FASB issued FASB Staff Position No. FIN 48-1, Definition of Settlement in FASB Interpretation No. 48 (“the FSP”). The FSP provides guidance about how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. Under the FSP, a tax position could be effectively settled on completion of examination by a taxing authority if the entity does not intend to appeal or litigate the result and it is remote that the taxing authority would examine or re-examine the tax position. The Company does not expect that this interpretation will have a material impact on its financial position, results of operations, or cash flows.

Accounts Receivable

The Company extends credit to its customers in the normal course of business. Further, the Company regularly reviews outstanding receivables, and provides estimated losses through an allowance for doubtful accounts. In evaluating the level of established loss reserves, the Company makes judgments regarding its customers’ ability to make required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. The Company also performs ongoing credit evaluations of customers’ financial condition. The Company maintains reserves for potential credit losses, and such losses traditionally have been within its expectations.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Machinery and equipment are depreciated over 10 years. Furniture and fixtures are depreciated over 10 years. Accelerated methods of depreciation are generally used for income tax purposes. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. The Company performs ongoing evaluations of the estimated useful lives of the property and equipment for depreciation purposes. The estimated useful lives are determined and continually evaluated based on the period over which services are expected to be rendered by the asset. Maintenance and repairs are expensed as incurred.

VITAMINSPICE

NOTES TO UNAUDITED CONDENSED

FINANCIAL STATEMENTS

March 31, 2011

Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," The Company periodically reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.

Other Intangible Assets

Acquired intangible assets are separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented or exchanged, regardless of the Company’s intent to do so.

Revenue Recognition

The Company recognizes revenue in accordance with the Securities and Exchange Commission, Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition” (“SAB No. 104”). SAB 104 clarifies application of generally accepted accounting principles related to revenue transactions. The Company also follows the guidance in EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables ("EITF Issue No. 00-21"), in arrangements with multiple deliverables.

The Company recognizes revenues when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery of products and services has occurred, (3) the fee is fixed or determinable and (4) collectability is reasonably assured.

The Company receives revenue for services and maintenance agreements. Milestone payments are recognized as revenue upon achievement of contract-specified events and when there are no remaining performance obligations. Revenues from monthly video streaming agreements, as well as equipment maintenance, are recorded when earned. Operating equipment lease revenues are recorded as they become due from customers. Revenues from equipment sales and installation are recognized when equipment delivery and installation have occurred, and when collectability is reasonably assured.

In certain cases, the Company enters into agreements with customers that involve the delivery of more than one product or service. Revenue for such arrangements is allocated to the separate units of accounting using the relative fair value method in accordance with EITF Issue No. 00-21. The delivered item(s) is considered a

VITAMINSPICE

NOTES TO UNAUDITED CONDENSED

FINANCIAL STATEMENTS

March 31, 2011

separate unit of accounting if all of the following criteria are met: (1) the delivered item(s) has value to the customer on a standalone basis, (2) there is objective and reliable evidence of the fair value of the undelivered item(s) and (3) if the arrangement includes a general right of return, delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the vendor. If all the conditions above are met and there is objective and reliable evidence of fair value for all units of accounting in an arrangement, the arrangement consideration is allocated to the separate units of accounting based on their relative fair values.

Explicit return rights are not offered to customers; however, the Company may accept returns in limited circumstances. There have been no returns through March 31, 2011. Therefore, a sales return allowance has not been established since management believes returns will be insignificant.

Earnings (loss) per share

Earnings (loss) per share is computed in accordance with SFAS No. 128, "Earnings per Share". Basic earnings (loss) per share is computed by dividing net income (loss), after deducting preferred stock dividends accumulated during the period, by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during the period.

Stock-based compensation

We use the Black-Scholes option pricing model as our method of valuation for share-based awards. Share-based compensation expense is based on the value of the portion of the stock-based award that will vest during the period, adjusted for expected forfeitures. Our determination of the fair value of share-based awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected life of the award, expected stock price volatility over the term of the award and historical and projected exercise behaviors. The estimation of share-based awards that will ultimately vest requires judgment, and to the extent actual or updated results differ from our current estimates, such amounts will be recorded in the period estimates are revised. Although the fair value of share-based awards is determined in accordance with authoritative guidance, the Black-Scholes option pricing model requires the input of highly subjective assumptions and other reasonable assumptions could provide differing results. Share-based compensation expense is recognized ratably over the applicable requisite service period, based on the fair value of such share-based awards on the grant date.

VITAMINSPICE

NOTES TO UNAUDITED CONDENSED

FINANCIAL STATEMENTS

March 31, 2011

The fair value of options and warrants at the date of grant is determined under the Black-Scholes option pricing model. During the three months ended March 31, 2011, the following weighted-average assumptions were used. There were no option grants in the three months ended March 31, 2011:

Assumptions	2011
Risk-free rate		2.49	%
Quarterly rate of dividends		––
Historical volatility		377.64	%
Expected life	1.5 to 3 years

The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant. We do not anticipate declaring dividends in the foreseeable future. Volatility was based on historical data. Our stock price volatility, option lives and expected forfeiture rates involve management’s best estimates at the time of such determination, all of which impact the fair value of the option calculated under the Black-Scholes methodology and, ultimately, the expense that will be recognized over the life of the option.

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and Disclosures,” which amends the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires disclosure of transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy, including the reasons and the timing of the transfers and information on purchases, sales, issuance, and settlements on a gross basis in the reconciliation of the assets and liabilities measured under Level 3 of the fair value measurement hierarchy. The guidance is effective for annual and interim reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual and interim periods beginning after December 15, 2010. The Company adopted these amendments in the first quarter of 2010 and the adoption did not have a material impact on the disclosures in the Company’s consolidated financial statements.

In June 2009, the FASB issued ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, which changes various aspects of accounting for and disclosures of interests in variable interest entities. ASU 2009-17 is effective for interim and annual periods beginning after November 15, 2009. The Company adopted these amendments in the first quarter of 2010 and the adoption did not have a material impact on the Company’s consolidated financial statements.

In June 2009, the Financial Accounting Standards Board ("FASB") issued authoritative guidance on accounting for transfers of financial assets. This guidance was issued to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor's continuing involvement, if any, in transferred

VITAMINSPICE

NOTES TO UNAUDITED CONDENSED

FINANCIAL STATEMENTS

March 31, 2011

financial assets. This guidance is effective for fiscal years and interim periods beginning after November 15, 2009. The adoption of this statement did not have a material effect on the Company's consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In July 2010, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance that will require additional disclosures about the credit quality of loans, lease receivables and other long-term receivables and the related allowance for credit losses. Certain additional disclosures in this new accounting guidance will be effective for the Company on December 31, 2010 with certain other additional disclosures that will be effective on March 31, 2011. The Company does not expect the adoption of this new accounting guidance to have a material impact on its consolidated financial statements.

In April 2010, the FASB issued ASU 2010-13, “Compensation — Stock Compensation (Topic 718) — Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades.” ASU 2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in ASU 2010-13 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010 and are not expected to have a significant impact on the Company’s consolidated financial statements.

In March 2010, the FASB issued ASU No. 2010-11, “Derivatives and Hedging (Topic 815) — Scope Exception Related to Embedded Credit Derivatives.” ASU 2010-11 clarifies that the only form of an embedded credit derivative that is exempt from embedded derivative bifurcation requirements are those that relate to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. The provisions of ASU 2010-11 became effective on July 1, 2010 and are not expected to have a significant impact on the Company’s consolidated financial statements.

In October 2009, the FASB issued ASU No. 2009-14, “Software (Topic 985) — Certain Revenue Arrangements That Include Software Elements (A Consensus of the FASB Emerging Issues Task Force)”. ASU 2009-14 requires tangible products that contain software and non-software elements that work together to deliver the products essential functionality to be evaluated under the accounting standard regarding multiple deliverable arrangements. This standard update is effective January 1, 2011 and may be adopted prospectively for revenue arrangements entered into or materially modified after the date of adoption or retrospectively for all revenue arrangements for all periods presented. The Company does not expect that this standard update will have a significant impact on its consolidated financial statements.

VITAMINSPICE

NOTES TO UNAUDITED CONDENSED

FINANCIAL STATEMENTS

March 31, 2011

In September 2009, the FASB issued certain amendments as codified in ASC Topic 605-25, “Revenue Recognition; Multiple-Element Arrangements.” These amendments provide clarification on whether multiple deliverables exist, how the arrangement should be separated, and the consideration allocated. An entity is required to allocate revenue in an arrangement using estimated selling prices of deliverables in the absence of vendor-specific objective evidence or third-party evidence of selling price. These amendments also eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method. The amendments significantly expand the disclosure requirements for multiple-deliverable revenue arrangements. These provisions are to be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. The Company will adopt the provisions of these amendments in its fiscal year 2011 and is currently evaluating the impact of these amendments to its consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

Reclassifications

Certain prior periods' balances have been reclassified to conform to the current period's financial statement presentation. These reclassifications had no impact on previously reported results of operations or stockholders' equity.

NOTE 3 – GOING CONCERN

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements during the three months ended March 31, 2011 and 2010, the Company incurred losses from continuing operations of $553,033 and $1,281,606, respectively.

While the Company is continuing to increase sales, other sources of cash will be necessary for the current year. Management may attempt to raise additional funds by way of a public or private offering. While the Company believes in the viability of its strategy to improve sales volume and in its ability to raise additional funds, there can be no assurances to that effect. The Company shareholders and officers have continued to advance funds to the Company but there can be no assurance that future advances will be made available.

These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company’s existence is dependent upon management’s ability to develop profitable operations and to resolve its liquidity problems. Management anticipates the Company will attain profitable status and improve its liquidity through the continued effort to grow its sales channels.

VITAMINSPICE

NOTES TO UNAUDITED CONDENSED

FINANCIAL STATEMENTS

March 31, 2011

NOTE 4 – RELATED PARTY TRANSACTIONS

All Company advances to its Chief Executive Officer which were made during the two years ended December 31, 2009 have been repaid. There were no advances in 2010 or the first quarter 2011. There was no agreement for these prior advances and it is not expected that any future advances will be made.

NOTE 5 – OTHER COMMITMENTS AND CONTINGENCIES

The Company has no outstanding commitments or contingencies as of March 31, 2011.

NOTE 6 – STOCK OPTION PLANS

The Board of Directors and Majority Shareholders have adopted and approved a stock option plan (the “2006 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 666,667 shares of Common Stock, and 66,667 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.

The Board of Directors and Majority Shareholders have adopted and approved a stock option plan (the “2009 Stock Option Plan”) dated the 28th day of September, 2009. This Plan is similar to the 2006 Plan but provides for grants of up to 20,000,000 shares of Common Stock, of which 18,083,000 options have been granted.

Additional options to purchase 3,100,000 shares have been issued under specific grants not made under the above referenced plans, including options for 1,000,000 shares granted in February 2010. These options were valued at $623,279 using Black-Scholes methodology.

VITAMINSPICE

NOTES TO UNAUDITED CONDENSED

FINANCIAL STATEMENTS

March 31, 2011

NOTE 7 – COMMON AND PREFERRED STOCK

The Company's articles of incorporation authorize the issuance of an unlimited number of preferred and common stock. No preferred stock is outstanding as of March 31, 2011.

The issuer, formerly known as Qualsec, issued 4,666,667 shares of common stock to its two founders in October 2006. An additional 1,000,000 shares were issued in a Regulation A offering at a price of $.30 per share (all share amounts give effect to a 1-for-30 reverse stock split effected in October, 2009). The original business of Qualsec was not successful, and in August 2009 Qualsec began to seek to acquire another business as a "reverse merger." Qualsec and VitaminSpice LLC entered into an Agreement and Plan of Reorganization on September 28, 2009 under which all the membership interests of VitaminSpice were exchanged for an aggregate of 100,000,000 newly issued shares of common stock. On the closing, five holders of the Registrant’s $130,000 in convertible promissory notes issued on March 12, 2008 and May 27, 2008 converted their notes into a total of 15,793,333 shares of common stock, and 50,000 shares were issued to a former officer and director. Immediately following the closing, there were 121,00,000 shares of common stock outstanding. In addition, option holders of the Delaware limited liability company were offered the opportunity to exchange their options for options to purchase shares of the Registrant, on the same ratio as the exchanging members of VitaminSpice. All of the optionees exchanged and options were issued to purchase an aggregate of 10,164,000 shares at prices ranging from $.01 to $.05 per share. None of these options have been exercised and 1,154,872 have lapsed.

The acquisition of VitaminSpice LLC has been accounted for as a reverse acquisition with VitaminSpice deemed to be the accounting acquiror which acquired the Qualsec "shell" by issuing 21,000,000 shares for net liabilities of Qualsec of $696.

The Company sold 824,999 shares in the quarter ended December 31, 2009 for cash of $125,000. The Company also issued 3,000,000 shares for services valued at $.15 per share to two persons and 50,000 shares valued at $.25 per share to another person. The Company issued options to purchase 9,075,000 shares at $.28 per share to one person in connection with his election as a director, issued options to purchase 100,000 shares at a price of $.28 per share to a law firm and issued options to purchase 2,000,000 shares at a price of $.42 per share to a shareholder for general business consulting services. There were 155,234,664 and 207,649,664 shares outstanding as of March 31, 2011 and December 31, 2010, respectively.

Basic loss per common share is computed based upon weighted-average shares outstanding and excludes any potential dilution. Diluted loss per share reflects the potential dilution from the exercise or conversion of all dilutive securities into Common Stock based upon the average market price of common shares outstanding during the period. For the three months ended March 31, 2011 and 2010, no effect has been given to outstanding options, warrants, convertible debentures and convertible preferred stock in the diluted computation, as their effect would be anti-dilutive.

VITAMINSPICE

NOTES TO UNAUDITED CONDENSED

FINANCIAL STATEMENTS

March 31, 2011

NOTE 8 – SHAREHOLDER ADVANCES AND NOTES

In the first quarter of 2011 we sold warrants for the issuance of 500,000 shares of common stock for cash of $60,000.

NOTE 9 – LITIGATION

Except as set forth below, as of March 31, 2011 the Company is not aware of any current of pending litigation which would effect the Company’s operations.

As of March 31, 2011, two pending suits existed as against the company as follows: (i) On March 9, 2011, a legal action was commenced in the General Court of Justice, State of North Carolina, County of Orange captioned Learned J. Hand v. VitaminSpice, et al. (Docket Number 11 cv 000507). The suit alleges violation of Article 8 of the Uniform Commercial Code with regard to a “stop order” placed on 50,000 of stock of the plaintiff. Since the date of this Report, the Company has reached a settlement in principal to resolve this matter and expects the settlement to be consummated in the second quarter of this year. (ii) Robison v. VitaminSpice, et al. (Supreme Court of Pennsylvania, Court of Common Pleas, Chester County, Docket Number 10 13170, Filed November 1, 2010). The Plaintiff alleges that is has an agreement with the Company whereby it loaned the sum of $50,000 to the Company and that the Company has failed to repay the loan and issue 50,000 shares of the Company’s common stock to the Plaintiff. The Company disputes the enforceability of the alleged agreement. The action is currently in the discovery stage and a tentative trial date has been set for July 2011.

Two litigations which were pending as of December 31, 2010 have been resolved. (i) On March 18, 2011 (filed on March 30, 2011) all claims against the Company in the case styled: Advanced Multilevel Concepts, et al. v. VitaminSpice, et al. (California Superior Court, Orange County, Docket Number 30-2010-00423757, filed November 18, 2010) had been dismissed on jurisdictional ground. As of the date of this Report, the Company has no knowledge of that suit being re-filed in any other jurisdiction. (ii) On the case of GPX Wayne Office Properties, LP v. VitaminSpice (Commonwealth of Pennsylvania, County of Chester, Docket Number MJ-15401-LT-0000159-2010, Filed December 22, 2010), the Company has paid the rent arrearages and the case was voluntarily dismissed.

NOTE 10 – SUBSEQUENT EVENTS

On March 18, 2011 the Company received a favorable ruling on its jurisdictional motion in the case titled Advanced Multilevel Concepts, et al. v. VitaminSpice, et al. (California Superior Court, Orange County, Docket Number 30-2010-00423757, filed November 18, 2010). As of the date of this Report, the Company has no knowledge of that suit being re-filed in any other jurisdiction.

Item 2. Plan of Operations.

Prior to January 2010 the Company’s operations were limited to development marketing of our vitamin related product line. Beginning in 2010 the Company began selling its vitamin products. Sales in the most recent three months ended March 31, 2011 was $629. The Company is seeking to market the Company’s products and secure contracts for same. However, equity funding will be required in order to develop the contracts required to achieve profitability. Any delay in equity funding may jeopardize continued operations.

Information included in this quarterly 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. This quarterly report should be read in conjunction with the annual report filed on Form 10K. The statements in "Risk Factors" found in the annual report on Form 10K and other statements and disclaimers 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.

Since the Company has not yet generated any material revenues, the Company is 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, acquire limited inventory, market the Company’s products and development of a business plan. The Company has included an explanatory paragraph in this report relating to the uncertainty of the Company 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. The Company does not believe that conventional financing, such as bank loans, is available to us due to these factors. Management believes that it will be able to raise the required funds for operations from one or more future offerings, in order to effectively continue operations.

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

● our success in marketing the Company’s products;

● our ability to obtain customers for our products;

● the effects of competition;

● our ability to obtain additional financing; and

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

Any or all of our forward looking statements in this quarterly 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.

Off-Balance Sheet Arrangements

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

Contractual Obligations

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

Item 4. Controls and Procedures.

As of March 31, 2011, the Company has only three employees and outsourced most functions. As such, a complete set of internal controls, including segregation of duties, is not possible in an organization of this size. However, we have now implemented limited control procedures surrounding the maintenance of the Company’s accounting and financial systems and the safeguarding of the Company’s assets. Further, all transactions entered into outside the course of the Company’s day to day operations must be approved by the President and C.E.O., Edward Bukstel.

The Company’s principal executive officer, based on his evaluation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d -14 (c) as of the end of the period covered by this quarterly report on Form 10Q (the “Evaluation Date”) the Company’s disclosure controls and procedures were not effective to provide reasonable assurance that information the Company is required to disclose in reports the Company may file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities Exchange Commission rules and forms, and that such information is accumulated and communicated to management, including the Company’s president and C.E.O., as appropriate to allow timely decisions regarding required disclosures.

The Company has identified deficiencies in the design or operation of the Company’s internal controls that we consider to be a material weakness in the effectiveness of the Company’s internal controls pursuant to standards established by the Public Accounting Oversight Board. A “material weakness” is a deficiency, or combination of significant deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Specifically, management has determined that the Company has an overall lack of segregation of duties as well as a lack of necessary corporate accounting resources related to the financial reporting process and accounting functions as the Company does not have any full time accounting personnel.

There were no significant changes in the Company’s internal controls in the quarter ending March 31, 2011 or in other factors that could significantly affect the Company’s internal controls subsequent to the date of their evaluation.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Except as set forth below, as of March 31, 2011 the Company is not aware of any current of pending litigation which would effect the Company’s operations.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	VITAMINSPICE


	By:	/s/ Edward Bukstel
		Edward Bukstel
		President & C.E.O.

Dated: May 20, 2011

QUALSEC - FORM 10-Q - May 20, 2011

Attached files

QUALSEC Reports