UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      10-QSB





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


For
      the
      quarterly period ended December 31, 2006







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


For
      the
      transition period from to





Commission
      File number 0-25541









**VISUALANT,
      INCORPORATED**


(Exact
      name of registrant as specified in charter)






Nevada
            91-1948357(State
                or other jurisdiction of
                incorporation or organization)
            (I.R.S.
                EmployerIdentification
                No.)





500
                Union Street, Suite 406
              Seattle,
                Washington USA
            98101(Address
                of principal executive offices)
            (Zip
                Code)







206-903-1351Registrant's
                telephone number, including
                area codeN/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), Yes [X] No [ ] and ( ) has been subject to filing
      requirements for the past 90 days. Yes [X] No [ ]





APPLICABLE
      ONLY TO CORPORATE ISSUERS:


Indicate
      the number of shares outstanding of each of the issuer's classes of common
      stock, as of the last practicable date.






Class
            
            Outstanding
                as of February 20,
                2007Common
                Stock, $0.001 per share
            
            16,503,891





1











TABLE
                  OF CONTENTSPagePART
                  1
              FINANCIAL
                  INFORMATION
              3ITEM
                  1
              Financial
                  Statements (unaudited)
              3Balance
                    Sheet as of  December 31, 2006 and September 30,2006
              4Statements
                    of Operations
                  For
                    the three months ended December 31,2006
                    and 2005, and for the period from October 8,1998
                    (Date of Inception) to December 31, 2006
              5Statement
                    of Changes in Stockholders' Equity
                  For
                    the period October 8, 1998 (Date ofInception)
                    to December 31, 2006
              6Statement
                    of Cash Flows
                  For
                    the three months ended December 31, 2006 and2005
                    and for the period from October 8, 1998(Date
                    of Inception) to December 31, 2006
              7Notes
                  to the Financial Statements
              8ITEM
                  2
              Management's
                  Discussion and Analysis or Plan of Operation
              14ITEM
                  3
              Controls
                  and Procedures
              16PART
                  11
              OTHER
                  INFORMATION
              17ITEM
                  6
              Exhibits
                  and Reports on Form 8-K
              17SIGNATURES
              17

















2


PART
      1 -
      FINANCIAL INFORMATION





ITEM
      1.
      FINANCIAL STATEMENTS





The
      accompanying balance sheets of Visualant, Incorporated (development stage
      company) at December 31, 2006 and September 30, 2006 and the statements of
      operations and of cash flows for the three months ended December 31, 2006 and
      2005 and for the period from October 8, 1998 (date of incorporation) to December
      31, 2006, 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 quarter ended December 31, 2006  are not necessarily
      indicative of the results that can be expected for the year ending September
      30,
      2007.


























































3


VISUALANT,
      INCORPORATED


(Development
      Stage Company)


BALANCE
      SHEETS


December
      31, 2006 and September 30, 2006




December
                31, 2006
            
            
            September
                30, 2006ASSETSCURRENT
                ASSETSCash
            
            $
            64
            
            $
            7,160Prepaid
                Expenses
            
            
            27,600
            
            
            -TOTAL
                ASSETS
            
            $
            27,664
            
            $
            7,160LIABILITIES
                AND STOCKHOLDERS' DEFICITCURRENT
                LIABILITIESNotes
                payable
            
            $
            221,721
            
            $
            165,705Accrued
                expenses and other liabilities
            
            
            54,970
            
            
            8,247Accounts
                payable
            
            
            515,449
            
            
            306,424Total
                Current Liabilities
            
            $
            792,140
            
            $
            480,376Commitments
                and Contingencies
            
            
            -
            
            
            -STOCKHOLDERS'
                DEFICITPreferred
                stock - $0.001 par value, 50,000,000 shares authorized, no shares
                issued
                and outstandingCommon
                stock - $0.001 par value, 200,000,000 shares authorized, 16,503,891
                shares
                issued and outstanding
            
            
            16,504
            
            
            16,504Additional
                paid in capital
            
            
            3,837,854
            
            
            3,604,969Deficit
                accumulated during the development stage
            
            
            (4,618,834
            )
            
            (4,094,689
            )Total
                Stockholders' Equity (Deficiency)
            
            
            (764,476
            )
            
            (473,216
            )TOTAL
                LIABILITIES & EQUITY
            
            $
            27,664
            
            $
            7,160





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, 2006 and 2005 and Period


October
      8, 1998 (Date of Inception) to December 31, 2006





Three
                Months
              Ended
                December
              31,
                2006
            
            
            Three
                Months
              Ended
                December
              31,
                2005
            
            
            October
                8, 1998 to December 31, 2006**Revenues**
            
            $
            -
            
            $
            -
            
            $
            -**Expenses**Research
                and development(includes
                stock compensation expense of $157,571, $0 and $157,571)
            
            
            249,317
            
            
            37,200
            
            
            936,726Administrative(includes
                stock compensation expense of $75,314, $0 and $147,314)
            
            
            264,102
            
            
            190,745
            
            
            2,445,916Total
                Operating Expense
            
            
            513,419
            
            
            227,945
            
            
            3,382,642Loss
                from Operations
            
            
            (513,419
            )
            
            (227,945
            )
            
            (3,382,642
            )**Other
                Income (Expense)**Settlement
                of debt
            
            
            -
            
            
            -
            
            
            43,400Interest
                expense
            
            
            (10,726
            )
            
            19
            
            
            (125,265
            )Loss
                of deposit
            
            
            -
            
            
            -
            
            
            (1,154,327
            )**Net
                Loss**
            
            
            ($524,145
            )
            
            ($227,926
            )
            
            ($4,618,834
            )Net
                Loss Applicable to Common StockholdersBasic
                and diluted
            
            $
            (0.03
            )
            $
            (0.01
            )Weighted
                Average Shares used in computing basicand
                diluted net loss per share
            
            
            16,503,891
            
            
            16,347,000





The
      accompanying notes are an integral part of these financial
      statements














5


**VISUALANT,
      INCORPORATED**


**(Development
      Stage Company)**


**STATEMENT
      OF CHANGES IN STOCKHOLDERS' EQUITY**


**For
      the Period October 8, 1998 (Date of Inception)**


**to
      December 31, 2006**





Common
                Stock
            
            Excess
                of
            
            
            AccumulatedShares
            
            
            Amount
            
            
            Par
                Value
            
            
            Deficit**Balance
                October 8, 1998 (date of inception)**
            
            
            -
            
            $
            -
            
            $
            -
            
            $
            -Issuance
                of common stock for cash at $.002 - November 20, 1998
            
            
            4,500,000
            
            
            4,500
            
            
            4,500
            
            
            -Issuance
                of common stock for cash at $.01 - November 25, 1998
            
            
            6,000,000
            
            
            6,000
            
            
            54,000
            
            
            -Issuance
                of common stock for cash at $.25 - December 4, 1998
            
            
            35,000
            
            
            35
            
            
            8,715
            
            
            -Capital
                contributions - expenses
            
            
            -
            
            
            -
            
            
            3,650
            
            
            -Net
                operating loss for the period October 8, 1998 to September 30,
                1999
            
            
            
            
            
            
            
            
            
            
            
            (27,748
            )Capital
                contributions - expenses
            
            
            -
            
            
            -
            
            
            3,650
            
            
            -Net
                operating loss for the year ended September 30, 2000
            
            
            -
            
            
            -
            
            
            -
            
            
            (64,537
            )Capital
                contributions - expenses
            
            
            -
            
            
            -
            
            
            3,650
            
            
            -Net
                operating loss for the year ended September 30, 2001
            
            
            -
            
            
            -
            
            
            -
            
            
            (7,585
            )Issuance
                of common stock for cash at $.50 - July 5, 2002
            
            
            26,200
            
            
            26
            
            
            13,116
            
            
            -Net
                operating loss for the year ended September 30, 2002
            
            
            -
            
            
            -
            
            
            -
            
            
            (113,475
            )Issuance
                of common stock for cash at $.50 - July 2003
            
            
            100,000
            
            
            100
            
            
            49,900
            
            
            -Issuance
                of common stock for services at $.001- June 2003
            
            
            150,000
            
            
            150
            
            
            -
            
            
            -Issuance
                of common stock as payment of debt at $.50 - July 2003
            
            
            184,848
            
            
            185
            
            
            92,239
            
            
            -Refund
                and return of common sharesat
                $.50 - August 2003
            
            
            (26,200
            )
            
            (26
            )
            
            (13,074
            )Issuance
                of common stock for cash at $.75 - September 2003
            
            
            520,000
            
            
            520
            
            
            389,480
            
            
            -Net
                operating loss for the year ended September 30, 2003
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,819,398
            )**Balance
                September 30, 2003**
            
            
            11,489,848
            
            
            11,490
            
            
            609,826
            
            
            (2,032,743
            )Issuance
                of common stock for cash at $.50 - net of issuance costs - August
                2004
            
            
            200,000
            
            
            200
            
            
            89,800
            
            
            -Compensation
                - incentive stock options
            
            
            -
            
            
            -
            
            
            24,000
            
            
            -Net
                operating loss for the year ended September 30, 2004
            
            
            -
            
            
            -
            
            
            -
            
            
            (161,267
            )**Balance
                September 30, 2004**
            
            
            11,689,848
            
            
            11,690
            
            
            723,626
            
            
            (2,194,010
            )Issuance
                of common stock for cash at $.50 - October to December
                2004
            
            
            424,000
            
            
            424
            
            
            211,576
            
            
            -Issuance
                of common stock for debt at $0.50
            
            
            2,665,502
            
            
            2,665
            
            
            1,330,086
            
            
            -Issuance
                of common stock for license at $0.75 - April 2005
            
            
            10,000
            
            
            10
            
            
            7,490
            
            
            -Issuance
                of common stock for cash at $0.75
            
            
            1,439,999
            
            
            1,440
            
            
            1,078,560
            
            
            -Issuance
                of common stock for services at $0.75
            
            
            77,875
            
            
            78
            
            
            58,328
            
            
            -Compensation
                - incentive stock options
            
            
            -
            
            
            -
            
            
            24,000
            
            
            -Net
                operating loss for the year ended September 30, 2005
            
            
            -
            
            
            -
            
            
            -
            
            
            (868,643
            )**Balance
                at September 30, 2005**
            
            
            16,307,224
            
            
            16,307
            
            
            3,433,666
            
            
            (3,062,653
            )Issuance
                of common stock for cash at $0.75
            
            
            146,667
            
            
            147
            
            
            109,853
            
            
            -Issuance
                of common stock for services at $0.75
            
            
            50,000
            
            
            50
            
            
            37,450
            
            
            -Compensation
                - incentive stock options
            
            
            -
            
            
            -
            
            
            24,000
            
            
            -Net
                operating loss for the year ended September 30, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,032,036
            )**Balance
                at September 30, 2006**
            
            
            16,503,891
            
            
            16,504
            
            
            3,604,969
            
            
            (4,094,689
            )Issuance
                of options for services
            
            
            -
            
            
            -
            
            
            157,571
            
            
            -Stock
                compensation expense
            
            
            -
            
            
            -
            
            
            75,314
            
            
            -Net
                operating loss for the period ended December 31, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            (524,145
            )**Balance
                at December 31, 2006**
            
            
            16,503,891
            
            $
            16,504
            
            $
            3,837,854
            
            $
            (4,618,834
            )The
                accompanying notes are an integral part of these financial
                statements







6


**VISUALANT,
      INCORPORATED**


**(Development
      Stage Company)**


**STATEMENTS
      OF CASH FLOWS**


**For
      the three months ended December 31, 2006 and 2005 and the
      Period**


**October
      8, 1998 (Date of Inception) to December 31, 2006**





**October
                8, 1998 to****December
                31,**
            
            
            **December
                31,**
            
            
            **December
                31,****2006**
            
            
            **2005**
            
            
            **2006****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                loss
            
            $
            (524,145
            )
            $
            (227,926
            )
            $
            (4,618,834
            )Reconciliation
                of net loss to net cash used in operating activities:Depreciation,
                amortization and tangible and intangible asset impairments
            
            
            -
            
            
            708
            
            
            19,808Issuance
                of capital stock for expenses
            
            
            -
            
            
            -
            
            
            82,956Stock
                based compensation
            
            
            75,314
            
            
            -
            
            
            147,314Stock
                Options issued in exchange for services
            
            
            157,571
            
            
            -
            
            
            157,571Loss
                of deposit
            
            
            -
            
            
            -
            
            
            1,154,327Capital
                contributions - expenses
            
            
            -
            
            
            -
            
            
            10,950Increase
                (decrease) in cash resulting from changes in assets and
                liabilities:Prepaid
                expenses
            
            
            (27,600
            )
            
            6,974
            
            
            (27,600
            )Accounts
                payable and accrued expenses
            
            
            255,748
            
            
            -
            
            
            1,997,655Net
                Cash Used in Operating Activities
            
            
            (63,112
            )
            
            (220,244
            )
            
            (1,075,853
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES**Purchase
                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 ACTIVITIES**Proceeds
                from issuance of common stock
            
            
            -
            
            
            -
            
            
            2,022,892Proceeds
                from issuance of notes payable
            
            
            56,016
            
            
            45,000
            
            
            219,660Net
                Cash Provided by Financing Activities
            
            
            56,016
            
            
            45,000
            
            
            2,242,552Net
                Changes in Cash
            
            
            (7,096
            )
            
            (175,244
            )
            
            64Cash
                at Beginning of Period
            
            
            7,160
            
            
            519,009
            
            
            -Cash
                at End of Period
            
            $
            64
            
            $
            343,765
            
            $
            64





The
      accompanying notes are an integral part of these financial
      statements














7
 
 **VISUALANT,
        INCORPORATED**
 **(Development
        Stage Company)**
 **NOTES
        TO FINANCIAL STATEMENTS**




**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 $.001 par value. On September 13, 2002 the name was
      changed to “Starberrys Corporation” as part of a change in the authorized
      capital stock by the addition of 50,000,000 shares of preferred stock with
      a par
      value of $.001. 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
      $524,000 and $228,000 for the three months ended December 31, 2006 and 2005,
      respectively. Our current liabilities exceeded our current assets by
      approximately $764,000 as of December 31, 2006. Our net cash used in operating
      activities approximated $63,000 for the three months ended December 31, 2006.





At
      December 31, 2006, total cash was approximately $64. Consequently, we are
      actively working with potential investors to obtain additional capital through
      various financing options; however, we do not have any financing commitments.
      There can be no assurance that financing will be available on favorable terms
      or
      at all. If we raise 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, 2006, our accumulated deficit was $4.7
      million. We have limited capital resources, and operations to date have been
      funded with the proceeds from public and 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 consolidated financial statements for the year
      ended September 30, 2006 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 management of the Company plans to obtain additional working
      capital through additional equity funding and short term borrowing which will
      enable the Company to conduct operations for the coming year. The financial
      statements do not include any adjustments that might be necessary if we are
      unable to continue as a going concern.





8
 
 **VISUALANT,
        INCORPORATED**
 **(Development
        Stage Company)**
 **NOTES
        TO FINANCIAL STATEMENTS**


**3.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





Accounting
      Methods





The
      Company recognizes income and expenses based on the accrual method of
      accounting.





Dividend
      Policy





The
      Company has not adopted a policy regarding payment of dividends.





Basic
      and Diluted Net Income (Loss) Per Share





Net
      loss
      per common share excludes any dilutive effects of options, warrants and
      convertible securities. Net earnings (loss) per share is computed using the
      weighted-average number of outstanding common shares and common stock equivalent
      shares during the applicable period. Common stock equivalent shares, which
      include options, warrants and convertible securities, are excluded from the
      computation if their effect is antidilutive. There were no dilutive instruments
      for the three months ended December 31, 2006.





Stock-based
      Compensation





Prior
      to
      October 1, 2006, we accounted for stock-based compensation under the recognition
      and measurement principles of SFAS No. 123, “Accounting for Stock-Based
      Compensation.” As permitted by SFAS No. 123, the Company accounts for such
      arrangements under APB Opinion No. 25, “Accounting for Stock Issued to
      Employees” and related interpretations. 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. We recognize these compensation costs on a straight-line basis over
      the
      requisite service period of the award. Total compensation cost recognized for
      fair value options issued was $39,000 and $0 for the three months ended December
      31, 2006 and 2005, respectively.





SFAS
      No.
      123R requires that cash flows resulting from tax deductions in excess of the
      cumulative compensation cost recognized for options exercised (excess tax
      benefits) be classified as cash inflows from financing activities and cash
      outflows from operating activities. Due to our net loss position, no tax
      benefits have been recognized in the cash flow statement.





We
      also
      apply SFAS No. 123R and the consensus in Emerging Issues Task Force No. 96-18
      "Accounting for Equity Instruments That Are Issued to Other Than Employees
      for
      Acquiring, or in Conjunction with Selling, Goods or Services" for stock based
      compensation to non-employees.





Cash
      and Cash Equivalents





The
      Company considers all highly liquid instruments purchased with a maturity,
      at
      the time of purchase, of less than three months, to be cash
      equivalents.





Income
      Taxes





We
      account for income taxes in accordance with SFAS No. 109, “Accounting for Income
      Taxes,” which requires recognition of deferred tax assets and liabilities for
      future tax consequences attributable to differences between the financial
      statement carrying amounts of existing assets and liabilities and their
      respective tax bases and tax credit carry forwards. Deferred tax assets and
      liabilities are measured using enacted tax rates expected to apply to taxable
      income in the years in which those temporary differences are expected to be
      recovered or settled. The effect on deferred tax assets and liabilities of
      a
      change in tax rates is recognized in income in the period that includes the
      enactment date.An
      allowance against deferred tax assets is recognized, when it is more likely
      than
      not, that such tax benefits will not be realized.


9
 
 **VISUALANT,
        INCORPORATED**
 **(Development
        Stage Company)**
 **NOTES
        TO FINANCIAL STATEMENTS**


**3.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued**





Financial
      Instruments





The
      carrying amounts of financial instruments, including cash and accounts payable,
      are considered by management to be their estimated fair values due to their
      short term maturities.





Financial
      and Concentrations Risk





The
      Company does not have any concentration or related financial credit risk except
      that it periodically maintains cash in banks in amounts over the insured amounts
      of $100,000, but are otherwise banks of high integrity.




Research
      and Development Costs





Expenditures
      relating to the development of new products and processes are expensed as
      incurred. These costs include expenditures for compensation, materials used
      in
      the development effort, supplies, depreciation of equipment used in the research
      activity, facilities and other internal costs, as well as expenditures for
      third
      party professional services.





Revenue
      Recognition





Revenue
      will be recognized on the sale and delivery of a product or the completion
      of a
      service provided.





Advertising
      and Market Development





The
      Company will expense advertising and market development costs as
      incurred.





Use
      of
      estimates





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect reported amounts of assets and liabilities
      as of the dates of the balance sheets and reported amount of revenues and
      expenses for the periods presented. Accordingly, actual results could materially
      differ from those estimates.





Foreign
      Currency Translation





Part
      of
      the transactions of the Company were completed in Canadian dollars. Foreign
      currency transaction gains and losses are a result of the effect of exchange
      rate changes on transactions denominated in currencies other than the functional
      currency. Gains and losses on those foreign currency transactions are included
      in determining net income or loss for the period in which exchange rates change.
      US dollars are considered to be the functional currency.





10
 
 **VISUALANT,
        INCORPORATED**
 **(Development
        Stage Company)**
 **NOTES
        TO FINANCIAL STATEMENTS**


**3.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued**




Recent
      Accounting Pronouncements





*SFAS No. 157,
      “Fair Value Measurements.”* SFAS 157
      defines fair value, establishes a framework for measuring fair value in
      generally accepted accounting principles, and expands disclosures about fair
      value measurements. SFAS 157 is not expected to have a material impact on
      the Company’s financial position or results of operations.





*FASB
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
      interpretation of FASB Statement 109.”* Interpretation
      48 prescribes a recognition threshold and a measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. Benefits from tax positions should be
      recognized in the financial statements only when it is more likely than not
      that
      the tax position will be sustained upon examination by the appropriate taxing
      authority that would have full knowledge of all relevant information. A tax
      position that meets the more-likely-than-not recognition threshold is measured
      at the largest amount of benefit that is greater than fifty percent likely
      of
      being realized upon ultimate settlement. Tax positions that previously failed
      to
      meet the more-likely-than-not recognition threshold should be recognized in
      the
      first subsequent financial reporting period in which that threshold is met.
      Previously recognized tax positions that no longer meet the more-likely-than-not
      recognition threshold should be derecognized in the first subsequent financial
      reporting period in which that threshold is no longer met. Interpretation 48
      also provides guidance on the accounting for and disclosure of unrecognized
      tax
      benefits, interest and penalties. Interpretation 48 was effective for the
      Company on October 1, 2006 and is not expected to have a material impact on
      the
      Company’s financial position or results of operations.





*Staff
      Accounting Bulletin (SAB) No. 108, “Considering the Effects of a Prior Year
      Misstatements When Quantifying Misstatements in Current Year Financial
      Statements.”* SAB 108
      addresses how the effects of prior year uncorrected errors must be considered
      in
      quantifying misstatements in the current year financial statements. The effects
      of prior year uncorrected errors include the potential accumulation of improper
      amounts that may result in a material misstatement on the balance sheet or
      the
      reversal of prior period errors in the current period that result in a material
      misstatement of the current period income statement amounts. Adjustments to
      current or prior period financial statements would be required in the event
      that
      after application of various approaches for assessing materiality of a
      misstatement in current period financial statements and consideration of all
      relevant quantitative and qualitative factors, a misstatement is determined
      to
      be material. SAB 108 is applicable to all financial statements issued by
      the Company after November 15, 2006.








**4.
      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
      owned by the Company, which the Company considers to be among its most
      sensitive, confidential, and proprietary information.





The
      Company has a working agreement with a contractor to further develop the
      technology pursuant to which the Company has agreed to pay development costs
      on
      a monthly basis.


11
 
 **VISUALANT,
        INCORPORATED**
 **(Development
        Stage Company)**
 **NOTES
        TO FINANCIAL STATEMENTS**


**5.
      NOTES PAYABLE**





During
      the year ended September 30, 2006, the Company entered into agreements with
      Coach Capital, LLC for three demand notes payable to Coach Capital, LLC totaling
      $163,644 for purposes of financing ongoing operations. Interest expense accrues
      on these notes at a rate of 18% per annum. In connection with these notes,
      the
      Company accrued loan fees totaling $2,061.





In
      November 2006, the Company entered into an additional demand note payable
      agreement with Coach Capital, LLC totaling $54,888 plus loan fees. The note
      accrues interest at 18% per annum. As a result of this additional note entered
      into during the three months ended December 31, 2006, notes payable plus loan
      fees totaled $221,721 as of December 31, 2006.




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 upon demand will
      result in a penalty interest rate of 30% per annum.








**6.
      COMMON CAPITAL STOCK**





During
      first quarter of fiscal year 2007, the Company did not enter into any agreements
      related to the issuance or sale of common stock.








**7.
      STOCK OPTIONS**




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. Options granted under the 2005 Stock Option Plan are as
      follows:




Shares
                Available
              for
                Grant
            
            Options
              Outstanding
            
            Weighted
                Average
              Exercise
                PriceBalance
                at September 30, 2006
            
            
            2,000,000
            
            
            805,000
            
            $
            0.75Grants
            
            
            -
            
            
            1,100,000
            
            
            0.75Cancelled
            
            
            -
            
            
            -
            
            
            -BalaBalance,
                December 31, 2006
            
            
            2,000,000
            
            
            1,905,000
            
            $
            0.75





Prior
      to
      2006, options were granted to employees and consultants under the terms of
      individual share purchase option agreements. As of September 30, 2006, 925,000
      options were outstanding under these share purchase option agreements. During
      1 st quarter
      2007, 25,000 of these options expired and 175,000 were cancelled. Accordingly,
      725,000 options to purchase common stock were outstanding under these pre-2005
      Stock Option Plan agreements at December 31, 2006.





Approximately
      1.05 million of the options outstanding at December 31, 2006 have been issued
      to
      consultants providing services to the Company. The remaining 1.58 million
      options outstanding have been granted to employees, directors or officers of
      the
      Company.





Options
      outstanding at December 31, 2006 are summarized as follows:


Range
                of
              Exercise
                Prices
            
            Stock
                Options
              Outstanding
            
            Stock
                Options
              Exercisable
            
            Weighted
                Average
              Exercise
                Price
            
            Weighted
                Average Remaining
              Contractual
                Life$0.10
                - $0.75
            
            2,630,000
            
            855,000
            
            $0.69
            
            3.82





12




**7.
      STOCK OPTIONS - continued**




The
      weighted-average fair value for options granted during 1 st quarter
      2007 was $0.55 and was estimated using the Black-Scholes option valuation model
      with the following weighted-average assumptions:





2006
            
            2005Expected
                life in years
            5.0
            
            3.0Volatility
            95.3%
            
            95.3%Interest
                rate
            4.79%
            
            4.03%Yield
                rate
            0%
            
            0%





None
      of
      the options have been exercised as of December 31, 2006.





Approximately
      950,000 of the stock options described above were issued in prior
      periods to consultants providing both research and development and
      administrative services to the Company.  Based on the fair value of these
      options, the Company recorded an additional $112,000 to expense and
      additional paid in capital. Approximately $94,000 is research and development
      expense and $18,000 is administrative expense in connection with the services
      performed by consultants. These amounts have been recorded in the three months
      ended December 31, 2006.








**8.
      SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES**





Officer-directors
      and their families have acquired approximately 11.9% of the outstanding common
      stock and have received the stock options outlined in note 7.








**9.
      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
 
 **VISUALANT,
        INCORPORATED**
 **(Development
        Stage Company)**
 **NOTES
        TO FINANCIAL STATEMENTS**


**10.
      SUBSEQUENT EVENTS**





*Notes
      Payable*





During
      January 2007, the Company entered into an additional demand note payable
      agreement with Coach Capital, LLC totaling $28,480, plus loan fees. The note
      accrues interest at 18% per annum.








ITEM
      2.
      MANAGEMENT'S PLAN OF OPERATIONS





**General**





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, 2006, the Company has filed five patent applications
      with the U.S. Patent Office.





The
      Company currently buys its research and development from outside third party
      sources. On December 16, 2005, 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
      3-month period ended December 31, 2006, the Company paid approximately $55,000
      in research and development fees to RATLab LLC, and assuming the Company is
      successful in raising additional funds, it anticipates that it will pay RATLab
      LLC the sum of $1.5 million dollars to develop operational prototypes over
      the
      next twelve months.





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. Dr. Furness also is the founder of the
      Virtual World Consortium, an organization of more than fifty leading technology
      companies and enterprises dedicated to sharing and advancing research in many
      scientific research areas important to the Company. 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 initially 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 December 31, 2006, the Company had no
      customers.


14


ITEM
      2.
      MANAGEMENT'S PLAN OF OPERATIONS - continued





The
      Company has developed successful 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.





This
      Report on Form 10-QSB 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, 2006 as well as in the Company's
      periodic reports on Forms 10-QSB 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.


15




ITEM
      2.
      MANAGEMENT'S PLAN OF OPERATIONS - continued




The
      Company’s cost to continue operations as they are now conducted is approximately
      $60,000 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 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 three months ended December 31, 2006, the Company obtained
      funds in the aggregate amount of $55,288 through loans from Coach Capital.
      If
      the Company is successful in raising additional funds, the Company’s research
      and development efforts will continue and expand.




**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.










ITEM
      3.
      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
      Company’s quarter ending December 31, 2006 (the “Evaluation Date”), have
      concluded that as of the Evaluation Date, the Company’s disclosure controls and
      procedures are 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,
      nor any significant deficiencies or material weaknesses in such disclosure
      controls and procedures requiring corrective actions.





**ITEM
      8B. OTHER INFORMATION**





There
      is
      no additional information that was not disclosed by the Company through 8K
      filings throughout the fiscal year.








16


PART
      II.
      OTHER INFORMATION





ITEM
      6.
      EXHIBITS AND REPORTS ON FORM 8-K





The
      exhibits filed herewith as required by Item 601 of Regulation S-B, are as
      follows:





(a)
      Exhibits





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








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 20, 2007
            By:
            /s/ Bradley
              E. SparksBradley
              E. SparksTitle:
              Chief Executive Officer, President, and
              Director




Date:
                February 20, 2007
            By:
            /s/ Bradley
              E. SparksBradley
              E. SparksTitle :
              Chief
              Financial Officer, and Secretary
              Treasurer






17