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 December 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. Yes xNo 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 oNo x





The
number of shares of common stock, $.001 par value, issued and outstanding as
of January 12, 2010:  29,262,707 shares







1











TABLE
      OF CONTENTSPage NumberPART
      1
            FINANCIAL
      INFORMATION
            3ITEM
      1
            Financial
      Statements (unaudited)
            3Balance
      Sheets as of December 31, 2009 and September 30, 2009
            4Statements
      of OperationsFor
      the three months ended December 31, 2009 and 2008, and the period from
      October 8, 1998 (Date of Inception) to December 31, 2009
            5Statements
      of Cash FlowsFor
      the three months ended December 31, 2009 and 2008 and for the period from
      October 8, 1998 (Date of Inception) to December 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
            11PART
      II
            OTHER
      INFORMATION
            12ITEM
      2
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            12ITEM
      6
            Exhibits
      and Reports on Form 8-K
            12SIGNATURES
            13






















































































2


PART
I - FINANCIAL INFORMATION





ITEM
      1.
            FINANCIAL
      STATEMENTS





The
accompanying balance sheets of Visualant, Incorporated (development stage
company) at December 31, 2009 and September 30, 2009, the statements of
operations for the three months ended December 31, 2009 and 2008, the statements
of cash flows for the three months ended December 31, 2009 and 2008 and for the
period from October 8, 1998 (date of incorporation) to December 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 month period ended December 31, 2009 are not necessarily
indicative of the results that can be expected for the year ending September 30,
2010.














































3


VISUALANT,
INCORPORATED


(Development
Stage Company)





BALANCE
SHEETS


December
31, 2009 and September 30, 2009





December
      31, 2009
            
            
            September
      30, 2009ASSETSCURRENT
      ASSETSCash
            
            $
            212,884
            
            
            $
            5,325Prepaid
      Expenses
            
            
            29,015
            
            
            
            6,514Total
      Current Assets
            
            
            241,899
            
            
            
            11,839Investment
            
            
            50
            
            
            
            50TOTAL
      ASSETS
            
            $
            241,949
            
            
            $
            11,889LIABILITIES AND STOCKHOLDERS'
      DEFICITCURRENT
      LIABILITIESNotes
      payable
            
            $
            157,072
            
            
            $
            157,072Convertible
      notes payable
            
            
            192,765
            
            
            
            -Accrued
      expenses and other liabilities
            
            
            139,968
            
            
            
            133,407Accrued
      expenses and other liabilities due to related parties
            
            
            753,138
            
            
            
            722,346Accounts
      payable
            
            
            168,349
            
            
            
            209,159Accounts
      payable due to related parties
            
            
            237,117
            
            
            
            156,367Total
      Current Liabilities
            
            
            1,648,409
            
            
            
            1,378,351Commitments
      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, 29,862,707 and
      29,162,707 shares issued and outstanding, respectively
            
            
            29,862
            
            
            
            29,162Additional
      paid in capital
            
            
            6,374,673
            
            
            
            6,229,,733Deficit
      accumulated during the development stage
            
            
            (7,810,995
            )
            
            
            (7,625,357
            )Total
      Stockholders' Equity (Deficiency)
            
            
            (1,406,460
            )
            
            
            (1,366,462
            )TOTAL
      LIABILITIES & EQUITY
            
            $
            241,949
            
            
            $
            11,889





The
accompanying notes are an integral part of these financial
statements





















































4


VISUALANT,
INCORPORATED


(Development
Stage Company)





STATEMENTS
OF OPERATIONS


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


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





Three
      Months Ended December 31, 2009
            
            
            Three
      Months Ended December 31, 2008
            
            
            Period
      of Inception from October 8, 1998 to December 31, 2009Revenues
            
            $
            -
            
            
            $
            -
            
            
            $
            -ExpensesResearch
      and development
            
            
            23,500
            
            
            
            214,105
            
            
            
            1,475,022Administrative
            
            
            150,075
            
            
            
            300,335
            
            
            
            4,822,307Total
      Operating Expense
            
            
            173,575
            
            
            
            514,440
            
            
            
            6,297,329Loss
      from Operations
            
            
            (173,575
            )
            
            
            (514,440
            )
            
            
            (6,297,329
            )Other
      Income (Expense)Settlement
      of debt
            
            
            -
            
            
            
            -
            
            
            
            43,400Interest
      expense
            
            
            (12,063
            )
            
            
            (14,706
            
            
            
            (402,739
            )Loss
      of deposit
            
            
            -
            
            
            
            -
            
            
            
            (1,154,327
            )Net
      Loss
            
            $
            (185,638
            )
            
            $
            (529,146
            )
            
            $
            (7,810,995
            )Net
      Loss Applicable to Common Stockholders Basic and diluted
            
            $
            (0.01
            )
            
            $
            (0.02
            )Weighted
      Average Shares used in computing basic and diluted net loss per
      share
            
            
            29,221,847
            
            
            
            26,439,503





The
accompanying notes are an integral part of these financial
statements











































5





VISUALANT,
INCORPORATED


(Development
Stage Company)





STATEMENTS
OF CASH FLOWS


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


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





Three
      Months Ended
            
            
            Three
      Months Ended
            
            
            October
      8, 1998December
      31,
            
            
            December
      31,
            
            
            to
      December 31,2009
            
            
            2008
            
            
            2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
            
            $
            (185,638
            )
            
            $
            (529,146
            )
            
            $
            (7,810,995
            )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
            
            
            49,000
            
            
            
            322,105
            
            
            
            730,311Stock
      based compensation
            
            
            35,304
            
            
            
            35,304
            
            
            
            617,601Stock
      Options Issued in exchange for services
            
            
            -
            
            
            
            -
            
            
            
            244,553Amortization
      of debt discount
            
            
            4,101
            
            
            
            -
            
            
            
            4,101Amortization
      of Deferred Financing
            
            
            -
            
            
            
            -
            
            
            
            96,000Loss
      of deposit
            
            
            -
            
            
            
            -
            
            
            
            1,154,327Capital
      contributions - expenses
            
            
            -
            
            
            
            -
            
            
            
            10,950Increase
      (decrease) in cash resulting from changes in assets
      and liabilities:Prepaid
      expenses
            
            
            (22,501
            )
            
            
            740
            
            
            
            (29,015
            )Accounts
      payable and accrued expenses
            
            
            77,293
            
            
            
            171,545
            
            
            
            3,592,946Net
      Cash Used in Operating Activities
            
            
            (42,441
            )
            
            
            548
            
            
            
            (1,369,413
            )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of property and equipment
            
            
            -
            
            
            
            -
            
            
            
            (12,308
            )Purchase
      of investment - deposit
            
            
            -
            
            
            
            -
            
            
            
            (1,154,377
            )Net
      Cash Used in Investing Activities
            
            
            -
            
            
            
            -
            
            
            
            (1,166,685
            )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from issuance of common stock
            
            
            -
            
            
            
            -
            
            
            
            2,022,892Proceeds
      from issuance of convertible debt
            
            
            250,000
            
            
            
            -
            
            
            
            675,340Proceeds
      from issuance of notes payable
            
            
            -
            
            
            
            -
            
            
            
            300,951Repayment
      of notes payable
            
            
            -
            
            
            
            -
            
            
            
            (250,201
            )Net
      Cash Provided by Financing Activities
            
            
            250,000
            
            
            
            -
            
            
            
            2,748,982Net
      Change in Cash
            
            
            207,559
            
            
            
            548
            
            
            
            212,884Cash
      at Beginning of Period
            
            
            5,325
            
            
            
            255
            
            
            
            -Cash
      at End of Period
            
            $
            212,884
            
            
            $
            803
            
            
            $
            212,884Supplemental
      disclosure of cash flow informationCash
      paid during the period for interest
            
            
            -
            
            
            
            -
            
            
            
            141,413Issuance
      of common stock to retire debt
            
            
            -
            
            
            
            482,095
            
            
            
            482,095Issuance
      of warrants in connection with convertible debt
            
            
            61,336
            
            
            
            -
            
            
            
            61,336





The
accompanying notes are an integral part of these financial
statements
































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




1.
            ORGANIZATION





Visualant,
Inc. was incorporated under the laws of the State of Nevada on October 8, 1998
with authorized common stock of 200,000,000 shares at $0.001 par value. On
September 13, 2002 50,000,000 shares of preferred stock with a par value of
$0.001 were authorized by the shareholders.  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
$186,000 and $529,000 for the three months ended December 31, 2009 and 2008,
respectively. Our current liabilities exceeded our current assets by
approximately $1.4 million as of December 31, 2009.  Our net cash used
in operating activities approximated $42,000 for the three months ended December
31, 2009.





As of
December 31, 2009, the Company had $212,884 in 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 December 31, 2009, our accumulated deficit was $7.8
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, 2009 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





The
Financial Accounting Standards Board modified the hierarchy of Generally
Accepted Accounting Principles, which identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with Generally Accepted Accounting Principles in the
United States (the GAAP hierarchy). The new Accounting Standards Codification
(ASC) became the single source of authoritative nongovernmental U.S. Generally
Accepted Accounting Principles.  The ASC became effective for interim
and annual periods ending after September 15, 2009, and did not have an impact
on the Company's financial statements other than changing the references to
authoritative accounting literature.




In June
2009, ASC Topic 810 was also amended to improve financial reporting by
enterprises involved with variable interest entities.  This topic
addresses (1) the effects on certain provisions regarding the consolidation of
variable interest entities, as a result of the elimination of the qualifying
special-purpose entity concept in ASC Topic 860 regarding the accounting for
transfers of financial ssets, and (2) concern about the application of certain
key provisions of FASB Interpretation No. 46(R), including those in which the
accounting and disclosures under the Interpretation do not always provide timely
and useful information about an enterprise's involvement in a variable interest
entity. This statement is effective as of the beginning of each reporting
entity's first annual reporting period that begins after November 15, 2009, for
interim periods within that first annual reporting period, and for interim and
annual reporting periods thereafter. Earlier application is prohibited. The
adoption of this statement is not expected to have a material effect on the
Company's financial statements.






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




3.
            SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES -continued





Recent Accounting Pronouncements -continued





In
January 2010, the FASB issued ASU No. 2010-06, "Fair Value Measurements and
Disclosures" ("ASU 2010-06")which provides amendments to Subtopic 820-10 that
require new disclosures regarding (1) transfers in and out of Levels 1 and 2
fair value measurements and (2) activity in Level 3 fair value measurements.
Additionally, ASU 2010-06 clarifies existing fair value disclosures about the
level of disaggregation and about inputs and valuation techniques used to
measure fair value. The guidance in ASU 2010-06 is effective for interim and
annual reporting periods beginning after December 15, 2009, except for
disclosures about purchases, sales, issuances, and settlements in the roll
forward activity in Level 3 fair value measurements which are effective for
fiscal years beginning after December 15, 2010, and for interim periods within
those fiscal years. The adoption of this statement is not expected to have a
material effect on the Company's financial statements.








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, 2009, 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 over the related period of
benefit.  Grants of stock options and stock to non-employees and other
parties are accounted for in accordance with the ASC 505.





Adoption
of SFAS No. 157, Fair Value Measurements





ASC Topic
820 "Fair value measurement and Disclosures" establishes a framework for
measuring fair value and expands disclosures about fair value measurements. ASC
820 defines fair value as the price that would be received to sell an asset or
paid to transfer a liability (an exit price) in an orderly transaction between
market participants at the reporting date.  The standard establishes a
three-tier hierarchy, which prioritizes the inputs used in the valuation
methodologies in measuring fair value:





*   Level
1 - Unadjusted observable quoted prices for identical instruments in active
markets.


*   Level
2 - Observable inputs other than those included in Level 1. For example, quoted
prices for similar assets or liabilities in active markets or quoted prices for
identical assets or liabilities in inactive markets.


*   Level
3 - Unobservable inputs reflecting management's own assumptions about the inputs
used in pricing the asset or liability.





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








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.





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 market-rate royalty to the Company and an equity participation in
an entity to be formed by the RATLab LLC to commercialize the Company’s
technology in the enumerated fields of use.  In accordance with the
definitive agreements, RATLab LLC formed Novabeam, Inc., an affiliate for
purposes of commercializing the intellectual property, of which 10% was sold and
transferred to the Company for $50.  Finally, in satisfaction of
outstanding matters, 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.






8
 
 VISUALANT,
INCORPORATED
 (Development
Stage Company)
 
 NOTES
TO FINANCIAL STATEMENTS
 December
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 amount converted of $482,095 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 former CEO and
President, Bradley E. Sparks totaling $50,000 plus loan fees of
$750.  As of December 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 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.





On April
30, 2009, accounts payable totaling $82,000 has been converted into a promissory
note.





On
September 30, 2009, accounts payable totaling $24,322 arising primarily from
operating cash advances to the Company from Ronald Erickson, the Company’s
Chairman of the Board, has been converted into a demand
note.   Interest expense accrues on the note at a rate of 8% and
is recorded in accrued liabilities from related parties.








7.
            CONVERTIBLE
      NOTES PAYABLE





On
December 7, 2009, the Company obtained $250,000 of financing from Coach Capital
pursuant to a Convertible Promissory Note earning interest at 8% and convertible
in one year at $0.15 per share.  Additionally, Coach Capital received
warrants to purchase 833,333 shares of the Company’s common stock at $0.15 per
share.  The warrant expires 3 years from the date of
issuance.




Upon
issuing the Note to Coach Capital, the Company recognized the note and warrants
based on their relative fair values of $250,000 and $81,000,
respectively.  The fair value of the note was determined using the
Black-Scholes option pricing model. The relative fair value of the warrants was
classified as a component of additional paid-in capital with the corresponding
amount reflected as a contra-liability to the debt.  The fair value of
the warrants was determined using the Black Scholes model, assuming a term of
three years, volatility of 267%, no dividends, and a risk-free interest rate of
1.34%.








8.
            COMMON
      CAPITAL STOCK





During
the quarter ended December 31, 2009, the company issued 300,000 shares of common
stock as grants to directors, 100,000 shares of common stock as grants to a
consultant, and 300,000 shares to RatLab, LLC. upon meeting the first milestone
pursuant to the letter of intent disclosed in Note 5 above.








8.
            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





We record
compensation expense associated with stock options and other equity-based
compensation using 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.  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 is recognized in the period the forfeiture estimate is
changed.








9
 
 VISUALANT,
INCORPORATED
 (Development
Stage Company)
 
 NOTES
TO FINANCIAL STATEMENTS
 December
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, 2009
            1,310,000
            
            0.67
            
            
            3.02
      yrsGranted
            -Exercised
            -Expired
            -Forfeited
            -Outstanding
      as of December  31, 2009
            1,310,000
            
            $
            0.67
            
            
            
            1.90
      yrs





No
options have been granted during the three months ended December 31,
2009.







10.
            STATEMENT
      OF STOCKHOLDERS’ EQUITY





CapitalCommon
      Stock
            
            
            In
      Excess
            
            
            AccumulatedShares
            
            
            Amount
            
            
            of
      Fair Value
            
            
            DeficitBalance
      at September 30, 2009
            
            
            29,162,707
            
            
            $
            29,162
            
            
            $
            6,229,733
            
            
            $
            (7,625,357
            )Stock
      compensation expense
            
            
            
            
            
            
            
            
            
            
            34,947Stock
      compensation expense - non-employee options
            
            
            
            
            
            
            
            
            
            
            357Issuance
      of common stock for services and outstanding accounts
    payable
            
            
            700,000
            
            
            
            700
            
            
            
            48,300Issuance
      of warrants in connection with convertible debt
            
            
            
            
            
            
            
            
            
            
            61,336Net
      operating loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (185,638
            )Balance
      at December 31, 2009
            
            
            29,862,707
            
            
            $
            29,862
            
            
            $
            6,374,673
            
            
            $
            (7,810,995
            )








11.
            SIGNIFICANT
      TRANSACTIONS WITH RELATED PARTIES





See
Note 6 for discussion of notes payable issued to the Company’s former 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 party accounts payable balance.  As of the
filing date, the directors and officers of the Company beneficially own an
aggregate 4,881,875 shares of common stock.





Mr.
Sparks is owed $721,333 of accrued salary plus $57,998 which has been accrued to
pay applicable payroll taxes, FUTA, etc.  Additionally, interest
of $26,179 is owed Mr. Sparks for the note payable described in Note 6
to these Notes to Financial Statements.  Mr. Sparks is also owed
$33,929 for cash amounts advanced by him to Visualant to fund operating expenses
since his employment.





Mr.
Ronald Erickson,converted outstanding debt with accrued interest in the amount
of $152,971 into 1,019,806 shares of common stock of the Company valued at $0.15
per share on March 27, 2009. .In addition, an affiliate of Mr. Erickson’s,
JulizI Limited
Partnership, loaned the Company operating funds during fiscal
2009.  The balance outstanding at December 31, 2009 is
$34,630.  Additionally, Mr. Erickson incurred expenses on behalf of
the Company for a total of $24,322 during the 2009 fiscal year.  This
balance was converted into a loan as of September 30, 2009 which bears interest
at 8%.  During the fiscal quarter ending December
31, 2009, Mr. Erickson incurred additional expenses on behalf of the Company
totaling an additional $12,495 which is recorded in accounts payable from
related parties.   Mr. Erickson became CEO and President on
November 12, 2009





Dr.
Kawahata, one of the Company’s directors, is owed $90,000 by the Visualant for
services rendered to the Company.






12.
            SUBSEQUENT
      EVENTS





We have
evaluated all events subsequent to the balance sheet date of December 31, 2009
through the date of issuance of these condensed financial statements,
February 11, 2010, and have determined that there are no subsequent events
that require disclosure.








10





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





The
Company has had limited activity during its first fiscal quarter of
2010.  As a result there is little change in the financial condition
of the Company since September 30, 2009.  As mentioned in Note 9 to
the Financial Statements above, Mr. Ron Erickson loaned the Company $11,982
during the quarter to cover expenses incurred by the Company.





On
December 7, 2009, the Company obtained $250,000 of financing from Coach Capital
pursuant to a Convertible Promissory Note earning interest at 8% and convertible
in one year at $0.15 per common share.  Additionally, Coach Capital
received warrants to purchase 833,333 shares of the Company’s common stock at
$0.15 per share.  The warrant expires 3 years from the date of
issuance.





Upon
issuing the Note to Coach Capital, the Company recognized the note and warrants
based on their relative fair values of $250,000 and $81,000,
respectively.  The fair value of the note was determined using the
Black-Scholes option pricing model. The relative fair value of the warrants was
classified as a component of additional paid-in capital with the corresponding
amount reflected as a contra-liability to the debt.  The fair value of
the warrants was determined using the Black Scholes model, assuming a term of
three years, volatility of 267%, no dividends, and a risk-free interest rate of
1.34%.





The
Company continues to work on the due diligence and negotiation of final terms
with regard to the possible acquisition of TransTech Systems, Inc. as disclosed
in the Company’s 8-K filing on November 23, 2010. If the Company proceeds with
this acquisition, it is anticipated that it will close in the first calendar
quarter of 2010.  No assurance can be given at this time that the
acquisition will in fact be completedas it is subject to many
conditions, some of which have yet to be fulfilled.





As was
disclosed in the Company’s 8-K filing, on November 17, 2009, Mr. Erickson has
assumed the positions of CEO, President and interim CFO, Secretary and Treasurer
as a result of the resignation of Mr. Bradley Sparks from those
positions.  Mr. Sparks continues to serve as a Director of the
Company.





The
Company continues to incur costs to sustain operations and preserve its
intellectual property while investigating possible alternatives and methods to
capitalize upon the potential business opportunities in the areas of national
security, document forgery/fraud, brand protection, label fraud and product
tampering.  There have been no material changes in the status of the
Company’s operations since September 30, 2009.





In
October 2009, the Company agreed to grant up to 1,000,000 shares of the
Company’s common stock to consultant David Markowski.  These shares
will be awarded over time and upon the completion of certain agreed upon
milestones.  In Decembere 31, 2009, the first 10,000 shares of common
stock were issued to David Markowski with respect to his fund raising
efforts.  On December 21, 2009, the Board of Directors agreed to grant
to CEO and President, Ronald Erickson, up to 5,000,000 shares of the Company’s
common stock to be awarded over time and upon completion of certain agreed upon
milestones.  The details of that agreement have not yet been finalized
and the shares have not yet been issued.





On
December 21, 2009 the board of directors granted Dr. Masahiro Kawahata Jon
Pepper, Marco Hegyi, and Yoshitami Arai 75,000 shares of common stock
each.  The shares of common stock were issued for past services
performed and board grants.








ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.





This item
is not applicable.






ITEM
      4.
            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





There
were no significant changes in the Company’s internal control over financial
reporting that occurred during the Company’s last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company’s disclosure controls and procedures subsequent to the Evaluation
Date.


11





PART
II.     OTHER INFORMATION





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





On
December 7, 2009, the Company obtained $250,000 of financing from Coach Capital
pursuant to a Convertible Promissory Note earning interest at 8% and convertible
in one year at $0.15 per common share.  Additionally, Coach Capital
received warrants to purchase 833,3332 shares of the Company’s common stock at
$0.15 per share.  The warrant expires 3 years from the date of
issuance.





Upon
issuing the Note to Coach Capital, the Company recognized the note and warrants
based on their relative fair values of $250,000 and $81,000,
respectively.  The fair value of the note was determined using the
Black-Scholes option pricing model. The relative fair value of the warrants was
classified as a component of additional paid-in capital with the corresponding
amount reflected as a contra-liability to the debt.  The fair value of
the warrants was determined using the Black Scholes model, assuming a term of
three years, volatility of 267%, no dividends, and a risk-free interest rate of
1.34%.





On
December 21, 2009 the board of directors granted Dr. Masahiro Kawahata Jon
Pepper, Marco Hegyi, and Yoshitami Arai 75,000 shares of common stock
each.  The shares of common stock were issued for past services
performed and board grants.  The public market price on December 21, 2009
was $0.07 per share.





The note
and shares issued during the first quarter of FY 2010 were unregistered and fall
under the purview of Section 4(2) of the Securities Act of 1933, as
amended.








ITEM
      6.
            EXHIBITS
      AND REPORTS ON FORM 8-K





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:





(a)        Exhibits





3.1
            Amended
      and Restated Articles of Incorporation, filed as 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
            Independent
      Contractor Agreement dated June 16, 2004 between the Company and eVision
      Technologies Inc. to provide research and development services with
      respect to the Company’s color technology, filed as Exhibit 10.2 to the
      Company’s Registration Statement on Form SB-2 filed on August 1, 2005,
      File No. 333-127100, and incorporated herein by
  reference.





10.3
            Worldwide
      Licensing Agreement dated April 21, 2005 between the Company and eVision
      Technologies Inc. granting the Company exclusive rights to the CBN coding
      system, filed as Exhibit 10.3 to the Company’s Registration Statement on
      Form SB-2 filed on August 1, 2005, File No. 333-127100, and incorporated
      herein by reference.





10.4
            Cross
      Licensing Agreement between the Company RATLab, LLC dated October 23, 2008
      granting certain exclusive and non-exclusive reciprocal and field use
      rights to technology developed and owned by Visualant and the RATLab,
      LLC.  Filed as Exhibit 10.4 to Form 10K filed on January 13,
      2010 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





12


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:
      February 11, 2010
            By:
            /s/ Ronald
      P. EricksonRonald
      P. EricksonChief
      Executive Officer, President, and Director





Date:
      February 11, 2010
            By:
            /s/ Ronald
      P. EricksonRonald
      P. EricksonChief
      Financial Officer, and Secretary Treasurer



















13