UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





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




For the
quarterly period ended March 31, 2009








o     TRANSITION
REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT





For the
transition period from _______ to ________





Commission
File
number               000-30262







VISUALANT,
INCORPORATED





(Exact
name of registrant as specified in charter)







Nevada
                91-1948357(State
      or other jurisdiction of incorporation or
    organization)
                (I.R.S.
      Employer Identification No.)500 Union Street, Suite
      406, Seattle, Washington
      USA
                98101(Address
      of principal executive offices)
                (Zip
      Code)






206-903-1351(Registrant's
      telephone number, including area code)N/A(Former
      name, address, and fiscal year, if changed since last
    report)






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.




Yesx  No o







Indicate
by checkmark whether the registrant is a large accelerated filer, an accelerated
filer or a non-accelerated filer (See the definitions of “large accelerated
filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act).




Large
accelerated filer  o           Accelerated
filer  o           Non-accelerated
filer o           Smaller
reporting company  x







Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).




Yes o  No x







The
number of shares of common stock, $.001 par value, issued and outstanding as
of  May 14, 2009:  27,742,901 shares







Transitional
Small Business Disclosure Format (check one):




Yes o No x




1






TABLE
      OF CONTENTSPage NumberPART
      1
                    FINANCIAL
      INFORMATION
                    3ITEM
      1
                    Financial
      Statements (unaudited)
                    3Balance
      Sheets as of March 31, 2009 and September 30, 2008
                    4Statements
      of OperationsFor
      the three and six months ended March 31, 2009 and 2008, and the
      period from October 8, 1998 (Date of Inception) to March 31,
      2009
                    5Statements
      of Cash FlowsFor
      the six months ended March 31, 2009 and 2008 and for the
      period from October 8, 1998 (Date of Inception) to March 31,
      2009
                    6Notes
      to the Financial Statements
                    7ITEM
      2
                    Management's
      Discussion and Analysis of Financial Condition and Results of
      Operation
                    11ITEM
      4
                    Controls
      and Procedures
                    13PART
      II
                    OTHER
      INFORMATION
                    13ITEM
      2
                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                    13ITEM
      6
                    Exhibits
                    13SIGNATURES
                    14
















































2







PART
I - FINANCIAL INFORMATION





ITEM
      1.
            FINANCIAL
      STATEMENTS





The
accompanying balance sheets of Visualant, Incorporated (development stage
company) at March 31, 2009 and September 30, 2008, the statements of operations
for the three and six months ended March 31, 2009 and 2008, the statements of
cash flows for the six months ended March 31, 2009 and 2008 and for the period
from October 8, 1998 (date of incorporation) to March 31, 2009, have been
prepared by the Company's management, in conformity with principles generally
accepted in the United States of America.  In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and all such
adjustments are of a normal recurring nature.





Operating
results for the three and six month periods ended March 31, 2009 are not
necessarily indicative of the results that can be expected for the year ending
September 30, 2009.





















































3








VISUALANT,
INCORPORATED


(Development
Stage Company)




BALANCE
SHEETS


March
31, 2009 and September 30, 2008





March
      31, 2009
                                  
                                  
                                  September
      30, 2008ASSETSCURRENT
      ASSETSCash
                                  
                                  $
                                  137
                                  
                                  
                                  $
                                  255Prepaid
      Expenses
                                  
                                  
                                  16,842
                                  
                                  
                                  
                                  1,766Total
      Current Assets
                                  
                                  
                                  16,979
                                  
                                  
                                  
                                  2,021Total
      Long Term Assets
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -TOTAL
      ASSETS
                                  
                                  $
                                  16,979
                                  
                                  
                                  $
                                  2,021LIABILITIES
      AND STOCKHOLDERS' DEFICITCURRENT
      LIABILITIESNote
      payable to a related party
                                  
                                  $
                                  50,750
                                  
                                  
                                  $
                                  50,750Accrued
      expenses and other liabilities
                                  
                                  
                                  146,045
                                  
                                  
                                  
                                  110,562Accrued
      expenses and other liabilities due to related parties
                                  
                                  
                                  596,100
                                  
                                  
                                  
                                  504,662Accounts
      payable
                                  
                                  
                                  367,116
                                  
                                  
                                  
                                  780,912Accounts
      payable due to related parties
                                  
                                  
                                  290,532
                                  
                                  
                                  
                                  264,429Total
      Current Liabilities
                                  
                                  
                                  1,450,543
                                  
                                  
                                  
                                  1,711,315Long-term
      Notes Payable
                                  
                                  
                                  -
                                  
                                  
                                  
                                  425,340Commitments
      and Contingencies
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -STOCKHOLDERS'
      DEFICITPreferred
      stock - $0. 001 par value, 50, 000,000 shares authorized, no shares issued
      and outstanding
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Common
      stock - $0.001 par value, 200,000,000 shares authorized, 27,742,901 and
      18,353,891 shares issued and outstanding, respectively
                                  
                                  
                                  27,743
                                  
                                  
                                  
                                  18,354Additional
      paid in capital
                                  
                                  
                                  5,941,080
                                  
                                  
                                  
                                  4,521,760Deficit
      accumulated during the development stage
                                  
                                  
                                  (7,402,387
                                  )
                                  
                                  
                                  (6,674,748
                                  )Total
      Stockholders' Equity (Deficiency)
                                  
                                  
                                  (1,433,564
                                  )
                                  
                                  
                                  (2,134,634
                                  )TOTAL
      LIABILITIES & EQUITY
                                  
                                  $
                                  16,979
                                  
                                  
                                  $
                                  2,021





The
accompanying notes are an integral part of these financial
statements













4




VISUALANT,
INCORPORATED


(Development
Stage Company)




STATEMENTS
OF OPERATIONS


For
the Three and Six Months Ended March 31, 2009 and 2008 and the Period
from


October
8, 1998 (Date of Inception) to March 31, 2009





Three
      Months Ended March 31, 2009
                                  
                                  
                                  Three
      Months Ended March 31, 2008
                                  
                                  
                                  Six
      Months Ended March 31, 2009
                                  
                                  
                                  Six
      Months Ended March 31, 2008
                                  
                                  
                                  Period
      of Inception from October 8, 1998 to March 31, 2009Revenues
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -ExpensesResearch
      and development
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  214,105
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,451,522Administrative
                                  
                                  
                                  192,570
                                  
                                  
                                  
                                  201,100
                                  
                                  
                                  
                                  492,905
                                  
                                  
                                  
                                  484,014
                                  
                                  
                                  
                                  4,482,194Total
      Operating Expense
                                  
                                  
                                  192,570
                                  
                                  
                                  
                                  201,100
                                  
                                  
                                  
                                  707.010
                                  
                                  
                                  
                                  484,014
                                  
                                  
                                  
                                  5,933,716Loss
      from Operations
                                  
                                  
                                  (192,570
                                  )
                                  
                                  
                                  (201,100
                                  )
                                  
                                  
                                  (707,010
                                  )
                                  
                                  
                                  (484,014
                                  )
                                  
                                  
                                  (5,933,716
                                  )Other
      Income (Expense)Settlement
      of debt
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  43,400Interest
      expense
                                  
                                  
                                  (5,923
                                  )
                                  
                                  
                                  (15,775
                                  )
                                  
                                  
                                  (20,629
                                  )
                                  
                                  
                                  (40,421
                                  )
                                  
                                  
                                  (357,744
                                  )Loss
      of deposit
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,154,327
                                  )Net
      Loss
                                  
                                  $
                                  (198,493
                                  )
                                  
                                  $
                                  (216,875
                                  )
                                  
                                  $
                                  (727,639
                                  )
                                  
                                  $
                                  (524,435
                                  )
                                  
                                  $
                                  (7,402,387
                                  )Net
      Loss Applicable to Common Stockholders Basic and diluted
                                  
                                  $
                                  (0.01
                                  )
                                  
                                  $
                                  (0.01
                                  )
                                  
                                  $
                                  (0.03
                                  )
                                  
                                  $
                                  (0.03
                                  )Weighted
      Average Shares used in computing basic and diluted net loss per
      share
                                  
                                  
                                  27,742,901
                                  
                                  
                                  
                                  18,244,001
                                  
                                  
                                  
                                  27,180,813
                                  
                                  
                                  
                                  17,710,722


The
accompanying notes are an integral part of these financial
statements













5




VISUALANT,
INCORPORATED


(Development
Stage Company)




STATEMENTS
OF CASH FLOWS


For
the Six Months Ended March 31, 2009 and 2008 and the Period from


October
8, 1998 (Date of Inception) to March 31, 2009





Six
      Months Ended
                              
                              
                              Six
      Months Ended
                              
                              
                              October
      8, 1998March
      31,
                              
                              
                              March
      31,
                              
                              
                              to
      March 31,2009
                              
                              
                              2008
                              
                              
                              2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                              
                              $
                              (727,639
                              )
                              
                              $
                              (524,435
                              )
                              
                              $
                              (7,402,387
                              )Reconciliation
      of net loss to net cash used in operating activities:Depreciation,
      amortization and tangible and intangible asset impairments
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              19,808Issuance
      of capital stock for expenses
                              
                              
                              384,056
                              
                              
                              
                              140,500
                              
                              
                              
                              682,512Stock
      based compensation
                              
                              
                              70,607
                              
                              
                              
                              69,893
                              
                              
                              
                              512,403Stock
      Options Issued in exchange for services
                              
                              
                              -
                              
                              
                              
                              6,348
                              
                              
                              
                              237,345Amortization
      of Deferred Financing
                              
                              
                              -
                              
                              
                              
                              16,000
                              
                              
                              
                              96,000Loss
      of deposit
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,154,327Capital
      contributions - expenses
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              10,950Increase
      (decrease) in cash resulting from changes in assets
      and liabilities:Prepaid
      expenses
                              
                              
                              (15,076
                              )
                              
                              
                              (8,728
                              )
                              
                              
                              (16,842
                              )Accounts
      payable and accrued expenses
                              
                              
                              287,934
                              
                              
                              
                              300,607
                              
                              
                              
                              3,373,674Net
      Cash Used in Operating Activities
                              
                              
                              (118
                              )
                              
                              
                              185
                              
                              
                              
                              (1,332,210
                              )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of property and equipment
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (12,308
                              )Purchase
      of investment - deposit
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (1,154,327
                              )Net
      Cash Used in Investing Activities
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (1,166,635
                              )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from issuance of common stock
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              2,022,892Proceeds
      from issuance of convertible debt
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              425,340Proceeds
      from issuance of notes payable
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              300,951Repayment
      of notes payable
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (250,201
                              )Net
      Cash Provided by Financing Activities
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              2,498,982Net
      Change in Cash
                              
                              
                              (118
                              )
                              
                              
                              185
                              
                              
                              
                              137Cash
      at Beginning of Period
                              
                              
                              255
                              
                              
                              
                              91
                              
                              
                              
                              -Cash
      at End of Period
                              
                              $
                              137
                              
                              
                              $
                              276
                              
                              
                              $
                              137Supplemental
      disclosure of cash flow informationCash
      paid during the period for interest
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              $
                              141,413Issuance
      of common stock to retire debt
                              
                              $
                              482,095
                              
                              
                              
                              -
                              
                              
                              $
                              482,095Issuance
      of common stock as consideration for accounts payable
                              
                              $
                              491,951
                              
                              
                              
                              
                              
                              
                              $
                              491,951





The
accompanying notes are an integral part of these financial
statements











6
 VISUALANT,
INCORPORATED
 (Development
Stage Company)
  NOTES
TO FINANCIAL STATEMENTS
 March
31, 2009






1.
            ORGANIZATION





Visualant,
Inc. was incorporated under the laws of the State of Nevada on October 8, 1998
under the name of “Cigar King Corporation” with authorized common stock of
200,000,000 shares at $0.001 par value. On September 13, 2002 the name was
changed to “Starberrys Corporation” as part of a change in the authorized
capital stock whereby 50,000,000 shares of preferred stock with a par value of
$0.001 were authorized.  On August 18, 2004 the name of the Company
was changed to “Visualant, Incorporated”. There are no preferred shares issued
and the terms have not been determined.





The
Company is in the development stage and has not commenced
operations.






2.
            GOING
      CONCERN





The
accompanying 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. We have incurred net losses of approximately
$727,639 and $524,435 for the six months ended March 31, 2009 and 2008,
respectively. Our current liabilities exceeded our current assets by
approximately $1.4 million as of March 31, 2009.  Our net cash used in
operating activities approximated $118 for the six months ended March 31,
2009.





As of
March 31, 2009, the Company had minimal cash.  The Company is
considered illiquid as this cash is not considered sufficient to fund the
recurring operating and associated financing costs. The Company needs to raise
additional funding to continue its operations.  However, there can be
no assurance that financing or additional funding will be available to the
Company on favorable terms or at all. If the Company raises additional capital
through the sale of equity or convertible debt securities, the issuance of such
securities may result in dilution to existing stockholders.




We
anticipate that we will generate significant losses from operations for the
foreseeable future. As of March 31, 2009, our accumulated deficit was $7.4
million.  We have limited capital resources, and operations to date
have been funded with the proceeds from private equity and debt financings.
These conditions raise substantial doubt about our ability to continue as a
going concern. The audit report prepared by our independent registered public
accounting firm relating to our financial statements for the year ended
September 30, 2008 includes an explanatory paragraph expressing the substantial
doubt about our ability to continue as a going concern.





Continuation
of the company as a going concern is dependant upon obtaining additional working
capital.  The financial statements do not include any adjustments that
might be necessary if we are unable to continue as a going concern.







3.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES




Recent
Accounting Pronouncements




In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations — a
Replacement of FASB Statement No. 141 (“SFAS No. 141(R)”). The
statement is to be applied prospectively for fiscal years beginning on or after
December 15, 2008. The statement also applies to the treatment of taxes
from prior business combinations. The statement requires more assets acquired
and liabilities assumed in future business combinations to be measured at fair
value as of the acquisition date. In addition, expenses incurred for all
acquisition-related costs are to be expensed and liabilities related to
contingent consideration are to be re-measured to fair value each subsequent
reporting period. We will adopt SFAS No. 141(R) at the beginning of our
2010 fiscal year, or October 1, 2009. We do not expect this statement will
have a significant impact on our consolidated financial position or results of
operations when adopted.




In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements — an amendment of ARB No. 51
(“SFAS No. 160”). The statement changes how non-controlling interests in
subsidiaries are measured to initially be measured at fair value and classified
as a separate component of equity. SFAS No. 160 establishes a single method
of accounting for changes in a parent’s ownership interest in a subsidiary that
do not result in deconsolidation. No gains or losses will be recognized on
partial disposals of a subsidiary where control is retained. In addition, in
partial acquisitions, where control is obtained, the acquiring company will
recognize and measure at fair value all of the assets and liabilities, including
goodwill, as if the entire target company had been acquired. The statement is to
be applied prospectively for fiscal years beginning on or after
December 15, 2008. We will adopt this statement on October 1, 2009,
which is the beginning of our 2010 fiscal year. Currently we do not have any
subsidiaries, and therefore we do not anticipate any significant impact on our
financial position or results of operations when adopted.






7
 VISUALANT,
INCORPORATED
 (Development
Stage Company)
  NOTES
TO FINANCIAL STATEMENTS
 March
31, 2009




4.
            SIGNIFICANT
      ACCOUNTING POLICIES: ADOPTION OF ACCOUNTING
  STANDARDS




The
significant accounting policies used in the preparation of our Condensed
Financial Statements are disclosed in our Form 10-K for the year ended September
30, 2008, as filed with the Securities and Exchange Commission.





Accounting
for Share Based Compensation





The
Company has share-based compensation plans under which employees and
non-employee directors may be granted restricted stock, as well as options to
purchase shares of Company common stock at the fair market value at the time of
grant. Stock-based compensation cost is measured by the Company at the grant
date, based on the fair value of the award, over the requisite service period.
For options issued to employees, the Company recognizes stock compensation costs
utilizing the fair value methodology prescribed in Statement of Financial
Accounting Standards 123 (“SFAS 123(R)”) (revised 2004), Share Based Paymentover the
related period of benefit.  Grants of stock options and stock to
non-employees and other parties are accounted for in accordance with the
Financial Accounting Standards Board's Emerging Issue Task Force Abstract, EITF
96-18, Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods and Services ("EITF 96-18") and SFAS
123(R).





Adoption
of SFAS No. 157, Fair Value Measurements




We
adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements(“SFAS No. 157”), on October 1, 2008 for financial assets and
liabilities. We elected to defer adoption of SFAS No. 157 for our
non-financial assets and liabilities until October 1, 2009 as permitted by
FASB Staff Position No. 157-2, Effective Date of FASB Statement
No. 157.




As of
March 31, 2009, there are no financial assets or liabilities requiring
additional fair value disclosure.




SFAS
No. 157 defines fair value, establishes a framework for measuring fair
value and enhances disclosures about fair value measurements. Fair value is
defined as the exchange price that would be received for an asset or paid to
transfer a liability (or exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants on the measurement date. Valuation techniques used to measure fair
value must maximize the use of observable inputs and minimize the use of
unobservable inputs. SFAS No. 157 establishes a fair value hierarchy based
on three levels of inputs that may be used to measure fair value. The input
levels are:




Level 1:
            
            Quoted
      (observable) market prices in active markets for identical assets or
      liabilities.





Level 2:
            
            Inputs
      other than Level 1 that are observable, such as quoted prices for similar
      assets or liabilities; quoted prices in markets that are not active; or
      other inputs that are observable or can be corroborated by observable
      market data for substantially the full term of the asset or
      liability.Level 3:
            
            Unobservable
      inputs that are supported by little or no market activity and that are
      significant to the fair value of the asset or
  liability.






5.
            DEVELOPMENT
      OF TECHNOLOGIES OWNED BY THE
COMPANY





The
Company is in the business of researching, developing, acquiring, and
commercializing products and services related to illumination and detection of
electromagnetic energy, typically in the visible and near-visible portions of
the electromagnetic spectrum, using specialized illumination and sensing systems
and spatial analysis software modeling which allow for pattern
recognition.  This technology involves specialized and proprietary
information and trade secrets, which the Company considers to be among its most
sensitive, confidential, and proprietary information.







8
 VISUALANT,
INCORPORATED
 (Development
Stage Company)
  NOTES
TO FINANCIAL STATEMENTS
 March
31, 2009




6.
            NOTES
      PAYABLE





In
October 2008, the Long Term Note Payable and accrued interest outstanding with
Coventry Capital LLC was converted into 3,213,967 shares of common stock at
$0.15 per share.  The $482,095 amount converted was comprised of the
entire principal balance of $425,340 and accrued interest of
$56,755.




.In
February 2007, the Company entered into a demand note with CEO and President,
Bradley E. Sparks totaling $50,000 plus loan fees of $750.  As of
March 31, 2009, the outstanding note payable totaled $50,750 consisting of the
note payable to Sparks.  Interest expense accrues on the note at a
rate of 18% per annum.  Accrued interest on the notes payable is
recorded in the balance sheet in related party accrued expenses and other
liabilities.




Any
delays in repayment of the principal and accrued interest on the note payable
upon demand result in a penalty interest rate of 30% per annum.  The
interest due to Sparks became in arrears on February 16, 2008 and has not been
paid as of the date of this filing.  Sparks has not demanded repayment
of the note as of the date of this filing.







7.
            LINE
      OF CREDIT





In
October 2008, the Convertible Line of Credit Agreement with Coventry Capital LLC
was terminated and the total $482,095 outstanding  Long Term Note
Payable with Coventry was converted into 3,213,967 shares of common stock at
$0.15 per share.  The amount converted was comprised of the principal
balance of $425,340 and accrued interest of $56,755.






8.
            COMMON
      CAPITAL STOCK





During
the six months ended December 31, 2008, the company issued 6,039,010 shares of
common stock in satisfaction of $906,823 of outstanding indebtedness, including
the debt due to Coventry Capital, 950,000 shares of common stock as grants to
directors, 550,000 shares of common stock as grants to consultants, and
1,850,000 shares in resolution of certain outstanding matters with the RatLab
LLC.   No additional shares were issued during the quarter ended
March 31, 2009.








9.
            STOCK
      OPTIONS




Description of Stock Option
Plan




In 2005,
our Board of Directors adopted a combined incentive and nonqualified stock
option plan for our employees and consultants (“2005 Stock Option
Plan”).   On October 9, 2006 the Board of Directors authorized an
increase in shares available for grant from 2 million to 4 million, subject to
stockholder approval.




Determining Fair Value Under
SFAS No. 123R




Effective
October 1, 2006, we began recording compensation expense associated with stock
options and other equity-based compensation in accordance with SFAS No. 123
(revised 2004), “Share-Based Payment”. We adopted FAS 123(R) using the modified
prospective method.  Share-based compensation recognized in fiscal
2007 as a result of the adoption of SFAS No. 123R use the
Black-Scholes-Merton option valuation model for estimating fair value of stock
options granted under our plan. We amortize the fair value of stock options on a
ratable basis over the requisite service periods, which are generally the
vesting periods. The expected life of awards granted represents the period of
time that they are expected to be outstanding.  We estimate the
volatility of our common stock based on the historical volatility of our own
common stock over the most recent period corresponding with the estimated
expected life of the award. We base the risk-free interest rate used in the
Black-Scholes-Merton option valuation model on the implied yield currently
available on U.S. Treasury zero-coupon issues with an equivalent remaining term
equal to the expected life of the award. We have not paid any cash dividends on
our common stock and do not anticipate paying any cash dividends in the
foreseeable future. Consequently, we use an expected dividend yield of zero in
the Black-Scholes-Merton option valuation model.  In accordance with
SFAS No. 123R, we adjust share-based compensation for changes to the
estimate of expected equity award forfeitures based on actual forfeiture
experience. The effect of adjusting the forfeiture rate for all expense
amortization after October 1, 2006 is recognized in the period the
forfeiture estimate is changed.








9
 VISUALANT,
INCORPORATED
 (Development
Stage Company)
  NOTES
TO FINANCIAL STATEMENTS
 March
31, 2009




9.
            STOCK OPTIONS –
      continued




Stock Option
Activity




A summary
of activity relating to our stock option plan is as follows:




Options
                                
                                Weighted-
                                  Average
                                  Exercise Price
                                
                                
                                Weighted-
                                  Average
                                  Remaining
                                  Contractual TermOutstanding
      as of September 30, 2008
                                1,485,000Granted
                                -Exercised
                                -Expired
                                -Forfeited
                                -Outstanding
      as of  March  31, 2009
                                1,485,000
                                
                                $
                                0.55
                                
                                
                                
                                2.8





No
options have been granted during the six months ended March 31,
2009.




10.
              STATEMENT
      OF STOCKHOLDERS’ EQUITY







CapitalCommon
      Stock
                                      
                                      
                                      in
      Excess
                                      
                                      
                                      AccumulatedShares
                                      
                                      
                                      Amount
                                      
                                      
                                      of
      Fair Value
                                      
                                      
                                      DeficitBalance
      at September 30, 2008
                                      
                                      
                                      18,353,891
                                      
                                      
                                      $
                                      18,354
                                      
                                      
                                      $
                                      4,521,760
                                      
                                      
                                      $
                                      (6,674,748
                                      )Stock
      compensation expense - employee options
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      69,8937Stock
      compensations expense - non-employee options
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      714Issuance
      of common stock for services and outstanding accounts
    payable
                                      
                                      
                                      6,175,043
                                      
                                      
                                      
                                      6,175
                                      
                                      
                                      
                                      869,832Issuance
      of common stock for retirement of debt
                                      
                                      
                                      3,213,967
                                      
                                      
                                      
                                      3,214
                                      
                                      
                                      
                                      478,881Net
      operating loss
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (727,639
                                      )Balance
      at March 31, 2009
                                      
                                      
                                      27,742,901
                                      
                                      
                                      $
                                      27,743
                                      
                                      
                                      $
                                      5,941,080
                                      
                                      
                                      $
                                      (7,402,387
                                      )







11.
            SIGNIFICANT
      TRANSACTIONS WITH RELATED PARTIES





See
Note 6 for discussion of notes payable issued to the Company’s CEO and
President during the quarter ended March 31, 2007.   Other than the
note payable, related interest and payroll related accruals, all amounts are
recorded in the related parties accounts payable balance.  As of the
filing date, the directors and officers of the Company beneficially own an
aggregate 4,581,875 shares of common stock or 16.5% of the Company.





Mr.
Sparks is owed $573,333 of accrued salary plus $46,222 which has been accrued to
pay applicable payroll taxes, FUTA, etc.  Additionally, interest
of $19,296 is owed Mr. Sparks for the note payable described in Note 6
to these Notes to Financial Statements.  Mr. Sparks is also owed
$32,265 for cash amounts advanced by him to Visualant to fund operating expenses
since his employment.





Mr.
Erickson is owed $135,928 for cash amounts advanced by him to Visualant to fund
operating expenses.  During the quarter ended March 31, 2009, Mr.
Erickson advanced $14,751 to the Company.  Additionally, the Company
owes Juliz I Limited Partnership (a limited partnership of which Mr. Erickson
exercises control) $34,630 for cash amounts advanced to fund operating
expenses during the six months ending March 31, 2009.  During third
quarter 2009, the amount outstanding to Mr. Erickson has been converted to
common stock.





Dr.
Kawahata is owed $90,000 by the Visualant Japanese operation for services
rendered to the Company.







12.
            CANCELLATION
      OF AGREEMENT TO PURCHASE SHARES OF
SCI





On April
9, 2003 the Company signed a Purchase Agreement with Malaremastastarnas
Riksforening, the owner of all the shares of Skandinaviska Farginstituter AB
(the Scandinavian Colour Institute or "SCI") which owns the color notation
system Natural Color Systems ("NCS"), containing the terms of an acquisition by
the Company or its assigns for a price of SEK 35,000,000 of all shares of
SCI.  Pursuant to the terms of the agreements the Company made
payments of $1,154,327 into an escrow account as part payment toward the
purchase price.  The Company subsequently failed to make further
payments on the contracts and by mutual agreement the contracts were cancelled
and the moneys paid were expensed.






13.
            SUBSEQUENT
      EVENTS





None




10




ITEM
      2.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





The
Company is a development stage company engaged in the business of
commercializing products and services based upon our spectral signature
technology as reflected in our recently filed patent
applications.  These patent applications pertain to the use of
controlled illumination with specific bands of electromagnetic radiation,
detection of returned electromagnetic radiation and data management in an
innovative manner enabling our devices to establish a unique spectral
signature for both individual and classes of items.  The unique
spectral signature data can potentially be used in a variety of applications in
areas such as brand protection, forgery detection, homeland security, medical
diagnostics, quality control, fluids monitoring, metal stress analysis, and many
others.  As of December 31, 2008, the Company has six
utility patent applications with the U.S. Patent Office.





The
Company purchases its research and development services from outside third party
sources.  On March 15, 2006, the Company entered into a research and
development contract with RATLab LLC, a privately-owned research laboratory in
Seattle, Washington.  Under the contract, RATLab performs research and
development using the Company’s existing intellectual property, as well as newly
developed research and technologies in order to assist the Company with the
commercialization of its core spectral signature technologies.  During
the twelve-month periods ended September 30, 2008, the Company made no payments
for research and development fees to RATLab LLC.  RATLab LLC is a
research laboratory formed primarily by Dr. Thomas Furness, founder and former
director of the Human Interface Technology Lab (HIT Lab) at the University of
Washington, and one of the leading researchers in the world in the area of human
interface technology.  RATLab LLC also employs other leading
scientists and research associates in the areas of computer science, imaging
technology, and light sensing technology, who are part of the team conducting
research on behalf of the Company.





The
Company’s research and development activities under its Research and Development
Contract with RATLab LLC, however, were suspended on July 12, 2007 due to lack
of funds.  During the three and six month periods ended March 31,
2009, the Company made no cash payments for research and development fees to
RATLab LLC. Developmental activities, however, will resume with the RATLab under
the terms of the new licensing agreement with the RatLab, which are set
forth below.





On August
20, 2008, the Company entered into a letter of intent with the RatLab
LLC.  The purpose of the agreement contemplated by the letter of the
intent was to achieve resolution of the relationship between the RatLab LLC and
the Company and provide a means for a mutually beneficial on-going
relationship.  On October 23, 2008, the Company and the RatLab LLC
entered into definitive agreements which provide for a non-commercial
non-exclusive license of the Company’s technology to the RatLab LLC for the
purpose of continuing research and development with a license back to the
Company for enhancements that are developed.  Further, an exclusive
license was entered into between the Company and the RatLab LLC for four fields
of use:  medical, agricultural, environmental and
jewelry.  This exclusive license provides for certain performance
milestones, a 5% of gross revenue  royalty to the Company for a period
of ten years and a ten percent equity participation in any entity to be formed
by the RatLab LLC to commercialize the Company’s technology in the enumerated
fields of use.  In this quarterly report, the RatLab contract is
incorporated  by reference  in Item 6, exhibit
10.3.





The
Company intends to position its technology as both a revolutionary as well as a
practical solution for security and fraud prevention applications and
markets.  The Company’s current focus is to secure customers for its
spectral signature technology and to capitalize upon the potential business
opportunities in the areas of national security, document forgery/fraud, brand
protection, label fraud and product tampering.  However, the
broad scope of the applications covered by the Company’s patent applications may
result in new opportunities surfacing from customers desiring prototypes
designed to satisfy their specific technology needs.  As of March 31,
2009, the Company had no customers.





The
Company has developed prototypes which capture the spectral signatures of items
and manage the data gathered.  These prototypes are being shown to
potential customers and funding sources to demonstrate the potential and
capabilities of our devices.  It is envisioned that once the Company
has secured a customer or customers, it will collaborate with the customer to
develop devices and specific applications of the Company’s technology that are
designed to address the customer’s unique concerns.  The Company will
then hire new personnel sufficient to fulfill its development obligations under
any contract entered into.  In lieu of such hiring, the Company may
contract with certain research organizations to perform development activities
on behalf of the Company.





Through
the formation and development of its Japanese division, the Company plans to
facilitate the development of business relationships with Japanese license
partners and to help build strong relationships between Visualant and the
Japanese marketplace.  The Company sees the expansion of Visualant
into the Japanese market place as a key strategic move which will allow it to
closely align with manufacturers and systems suppliers who can integrate the
Visualant technology into their product offerings.  During the quarter
ended March 31, 2009, the Company filedpatents covering its
technology in Japan.





On April
17, 2008 the Company announced its intent to acquire a majority owned Japanese
subsidiary, Visualant Kabushiki Kaisha (“KK”) headquartered in Tokyo,
Japan.  The Chairman of Visualant KK is Dr. Masahiro Kawahata, who
also serves as a member of the Board of Directors for Visualant,
Inc.  For 100,000 shares of its common stock, Visualant, Inc. plans to
purchase 66% of an existing entity of which Dr. Kawahata and Ron Erickson
previously owned, and of which they will continue to own, 17% each.  As of
March 31, 2009, the purchase of the existing entity shares has not closed and
the 100,000 Visualant shares have been issued, but still remain in the custody
of the Company.  They are not counted in the total Company shareholders
count.  The closing is expected to occur within calendar year
2009.






11




ITEM
      2.
            MANAGEMENT'S DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued




On
February 19 2009, the Company announced the execution of a Letter of Intent for
the acquisition of TransTech Systems, Inc. of Wilsonville,
OR.  TransTech Systems, Inc. founded by President Jim Gingo, is a
leading  provider of identification, security and authentication
products and services through a global dealer channel as well as government and
private sector customers worldwide.  With over $10 million in annual
revenues, TransTech can provide an established market presence for Visualant’s
verification technology, which should enable a rapid deployment of enhanced
security and authentication solutions.  The Letter of Intent provides
for the acquisition of privately held TransTech by Visualant through a
combination of cash and stock.  The closing is anticipated to occur
before the end of June 2009.





This
Report on Form 10-Q contains certain forward-looking statements that are based
on current expectations.  When used in this discussion, the words
"believe", "anticipates", "expects" and similar expressions are intended to
identify forward-looking statements.  Such statements
are  subject  to  certain risks and uncertainties,
which could cause actual results to differ materially from those projected, and
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved.  The
Company may encounter competitive, technological, financial and business
challenges making it more difficult than expected to continue to develop and
market its products; the market may not accept the Company’s future products;
the Company may not be able to retain existing key management personnel; and
there may be other material adverse changes in the Company’s operations or
business.  Assumptions relating to budgeting, marketing, and other
management decisions are subjective in many respects and thus susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause the Company to alter its marketing
or other budgets, which may in turn affect the Company’s financial position and
results of operations.  Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof.  The Company undertakes no obligation to republish revised
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.  Readers
are also urged to carefully review and consider the other risk factors relating
to the Company and the various disclosures made by the Company that
attempt to advise interested parties of factors which affect the Company's
business, in the Company’s Annual Report on Form 10-KSB for the year ended
September 30, 2008 as well as in the Company's periodic reports on Forms 10-Q
and 8-K filed with the Securities and Exchange Commission
(the  "SEC").  The Company's financial statements are stated
in United States Dollars and are prepared in accordance with United States
Generally Accepted Accounting Principles.






Liquidity
and Capital Resources




The
Company has no revenue to date from its operations, and its ability to implement
its plans for the future will depend on the future availability of
financing.  Such financing will be required to enable the Company to
further develop its spectral signature technology and continue its
operations.  The Company intends to raise further funds through
private placements of the Company's common stock and through short term
borrowing.  The financing activities of the Company are current and
ongoing, and it will expand and accelerate its development program as the timing
and amount of financing allow.  However, there can be no assurance
that the Company will be successful in obtaining additional capital for such
technology development from the sale of its capital stock, or in otherwise
raising substantial capital.





The
Company’s cost to continue operations as they are now conducted is approximately
$80,000 per month, and the Company does not have sufficient funds to cover
existing operations.   The Company needs to raise additional
funds in order to continue its existing operations, to resume its research and
development activities, and to finance its plans to expand its operations for
the next year.  The Company intends to raise the required funds by
obtaining share capital from outside sources.  During the quarter,
operating funds were advanced to the Company by its Chairman, Ronald P. Erickson
and salaries were deferred.  If the Company is successful in raising
additional funds, the Company’s research and development efforts will continue
and expand, and overdue accounts payable will be satisfied.




During
the six month period ended March 31, 2009, the Company converted $482,095 of its
outstanding indebtedness and accrued interest owed to
Coventry Capital into 3,213,967 shares of the Company’s common
stock. Also occurring in the first fiscal quarter of 2009, in satisfaction of
outstanding matters with the RatLab LLC, a total of 1,850,000 shares of the
Company’s common stock were issued, subject to certain restrictions, to current
and former RatLab LLC employees and consultants, in settlement of outstanding
matters with the RatLab LLC.




During
the six month period ended March 31, 2009 and excluding the conversion of
amounts owed to Coventry Capital, the Company converted $424,727.68 of its
outstanding indebtedness into 2,825,043 shares of the Company’s common
stock.





On
October 8, 2008 the board of directors granted Ron Erickson 500,000 shares of
common stock, Lynn Felsinger 300,000 shares of common stock, Dr. Masahiro
Kawahata 300,000 shares of common stock, and Jon Pepper, Marco Hegyi, and
Yoshitami Arai 50,000 shares of common stock.  The shares of common
stock were issued for past services performed and board
grants.







Off-Balance
Sheet Arrangements





The
Company currently has no off-balance sheet arrangements that have, or are
reasonably likely to have, a current or future effect on the Company’s financial
condition, revenues or expenses, results of operations, liquidity or capital
resources.






12





ITEM
      4T.
            CONTROLS
      AND PROCEDURES





(a)           
Evaluation of
Disclosure Controls and Procedures




The
Company’s Chief Executive Officer and Chief Financial Officer, after evaluating
the effectiveness of the Company’s controls and procedures (as defined in the
Securities Act of 1934 Rule 13a-15(e) or Rule 15d-15(e)) as of the end of the
period covered by this report, have concluded that the Company’s disclosure
controls and procedures are not effective to give reasonable assurance that the
information required to be disclosed in reports that the Company files under the
Exchange Act is recorded, processed, summarized and reported as and when
required.





(b)          
Changes in Internal
Control Over Financial Reporting




Our size
has prevented us from being able to employ sufficient resources to enable us to
have an adequate level of supervision and segregation of duties within our
internal control system.  There is one person involved in processing
transactions.  Therefore, it is difficult to effectively segregate
accounting duties.  While we strive to segregate duties as much as
practicable, there is insufficient financial resources to justify additional
staff.  As a result, this significant internal control deficiency is
not expected to be remediated until the Company secures customers and additional
financial resources.  This lack of segregation of duties leads
management to conclude that the Company’s disclosure controls and procedures are
not effective to give reasonable assurance that the information required to be
disclosed in reports that the Company files under the Exchange Act is recorded,
processed, summarized and reported as and when required.







PART
II.     OTHER INFORMATION




ITEM
      2.
            UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS




During
the quarter ended March 31, 2009, no additional equity securities were
issued.  During the six month period ended March 31, 2009, the Company
converted $482,095 of its outstanding indebtedness and accrued interest owed to
Coventry Capital  into  3,213,967 shares of the
Company’s common stock. Also occurring in the six month period ended March 31,
2009, in satisfaction of outstanding matters with the RatLab LLC, a total of
1,850,000 shares of the Company’s common stock was issued, subject to certain
restrictions, to current and former RatLab LLC employees and consultants, in
settlement of outstanding matters with the RatLab LLC.  Dr. Thomas
Furness and Dr. Brian Schowengerdt were awarded an additional 500,000 shares
each which vest upon their completion of performance metrics as outlined in the
license dated October 23, 2008.




During
the six month period ended March 31, 2009 and excluding the conversion of
amounts owed to Coventry Capital, the Company converted $424,727.68 of its
outstanding indebtedness into 2,825,043 shares of the Company’s common
stock.





On
October 8, 2008 the board of directors granted Ron Erickson 500,000 shares of
common stock, Lynn Felsinger 300,000 shares of common stock, Dr. Masahiro
Kawahata 300,000 shares of common stock, and Jon Pepper, Marco Hegyi, and
Yoshitami Arai 50,000 shares each of common stock.  The shares of
common stock were issued for past services performed and board
grants.   The board of directors also granted 250,000 shares
valued at $33,750 to Thelon Capital to provide future financial advisory
services to the Company designed to help raise working capital.
   The public market stock price on October 8, 2008 was $0.135
per share.





The
9,389,010 shares issued during the first fiscal quarter of 2009 were
unregistered and fall under the purview of Rule 144 of the Securities Exchange
Act of 1934, as amended.







ITEM
      6.
            EXHIBITS





The
exhibits required to be filed herewith by Item 601 of Regulation S-K, as
described in the following index of exhibits, are attached hereto unless
otherwise indicated as being incorporated by reference,
as  follows:





3.1
            Amended
      and Restated Articles of Incorporation, filed aa an exhibit to the
      Company’s annual report on Form 10-KSB filed on February 9, 2006, and
      incorporated herein by reference.





3.2
            Bylaws
      incorporated herein by reference to the Company’s Registration Statement
      on Form 10-SB filed on March 11,
1999.





4.1
            2005
      Combined Incentive and Non-Qualified Stock Option Plan of the Company,
      filed as an exhibit to the Company’s Registration Statement on Form SB-2
      filed on August 1, 2005, File no. 333-127100, and incorporated herein by
      reference.





10.1
            Intellectual
      Property Agreement dated June 16, 2004 between the Company and Kenneth
      Turpin, filed as an exhibit to the Company’s Registration Statement on
      Form SB-2 filed on August 1, 2005, File No. 333-127100, and incorporated
      herein by reference.





10.2
            Letter
      Agreement dated November 10, 2006 between the Company and Bradley E.
      Sparks, Chief Executive Officer, President and a member of the Board of
      Directors, filed as an exhibit to the Company's quarterly report on Form
      10-Q filed on February 23, 2009, File no. 000-30262 and
      incorporated herein by reference.





10.3
            Letter
      Agreement dated October 23, 2008 between the Company and RATLAB, LLC, and
      affiliates, filed as an exhibit to the Company's quarterly report on Form
      10-Q filed on February 23, 2009, File no. 000-30262 and incorporated
      herein by reference.





31.1
            Certification of the Chief Executive Officer
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
    2002




31.2
            Certification of the Chief Financial Officer
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
    2002





32.1
            Certificate Pursuant to 18 U.S.C. Section 1350
      signed by the Chief
Executive Officer





32.2
            Certificate Pursuant to 18 U.S.C. Section 1350
      signed by the Chief Financial
Officer


13







SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.











VISUALANT,
INCORPORATED





(Registrant)





Date:
      May 19, 2009
              By:
              /s/ Bradley
      E. SparksBradley
      E. SparksChief
      Executive Officer, President, and Director




Date:
      May 19, 2009
              By:
              /s/ Bradley
      E. SparksBradley
      E. SparksChief
      Financial Officer, and Secretary Treasurer










14