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 March 31, 2008








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 x  No o







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







The
number of shares of common stock, $.001 par value, issued and outstanding as
of  May 19, 2008:    18,353,891
shares







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









1








TABLE
      OF CONTENTSPage NumberPART
      1
            FINANCIAL
      INFORMATION
            3ITEM
      1
            Financial
      Statements (unaudited)
            3Balance
      Sheets as of March 31, 2008 and September 30, 2007
            4Statements
      of OperationsFor
      the three and six months ended March 31, 2008 and 2007, and the period
      from October 8, 1998 (Date of Inception) to March 31, 2008
            5Statements
      of Cash FlowsFor
      the six months ended March 31, 2008 and 2007 and for the period from
      October 8, 1998 (Date of Inception) to March 31, 2008
            6Notes
      to the Financial Statements.
            7ITEM
      2
            Management's
      Plan of Operation
            11ITEM
      3
            Controls
      and Procedures
            12PART
      II
            OTHER
      INFORMATION
            13ITEM
      6
            Exhibits
      and Reports on Form 8-K
            13SIGNATURES
            13




























2





PART
I - FINANCIAL INFORMATION




ITEM
      1.
            FINANCIAL
      STATEMENTS





The
accompanying balance sheets of Visualant, Incorporated (development stage
company) at March 31, 2008 and September 30, 2007, the statements of operations
for the three and six months ended March 31, 2008 and 2007, the statements of
cash flows for the six month periods ended March 31, 2008 and 2007 and for the
period from October 8, 1998 (date of incorporation) to March 31, 2008, have been
prepared by the Company's management, in conformity with principles generally
accepted in the United States of America.  In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and all such
adjustments are of a normal recurring nature.





Operating
results for the three and six month periods ended March 31, 2008 are not
necessarily indicative of the results that can be expected for the year ending
September 30, 2008.
























3


VISUALANT,
INCORPORATED


(Development
Stage Company)




BALANCE
SHEETS


March
31, 2008 and September 30, 2007





March
              31,
      2008
            
            
            September
              30,
      2007ASSETSCURRENT
      ASSETSCash
            
            $
            276
            
            
            $
            91Prepaid
      Expenses
            
            
            14,265
            
            
            
            5,537Total
      Current Assets
            
            
            14,541
            
            
            
            5,628Deferred
      Financing Costs, net
            
            
            67,156
            
            
            
            83,156TOTAL
      ASSETS
            
            $
            81,697
            
            
            $
            88,784LIABILITIES AND
      STOCKHOLDERS' DEFICITCURRENT
      LIABILITIESNotes
      payable
            
            $
            50,750
            
            
            $
            50,750Accrued
      expenses and other liabilities
            
            
            453,398
            
            
            
            297,842Accounts
      payable
            
            
            938,236
            
            
            
            793,185Total
      Current Liabilities
            
            
            1,442,384
            
            
            
            1,141,777Long-term
      Notes Payable
            
            
            425,340
            
            
            
            425,340Commitments
      and Contingencies
            
            
            -
            
            
            
            -STOCKHOLDERS'
      DEFICITPreferred
      stock - $0. 001 par value, 50, 000,000 shares authorized, no shares issued
      and outstanding
            
            
            -
            
            
            
            -Common
      stock - $0.001 par value, 200,000,000 shares authorized, 18,353,891 and
      16,853,891 shares issued and outstanding, respectively
            
            
            18,354
            
            
            
            16,854Additional
      paid in capital
            
            
            4,449,736
            
            
            
            4,234,495Deficit
      accumulated during the development stage
            
            
            (6,254,117
            )
            
            
            (5,729,682
            )Total
      Stockholders' Equity (Deficiency)
            
            
            (1,786,027
            )
            
            
            (1,478,333
            )TOTAL
      LIABILITIES & EQUITY
            
            $
            81,697
            
            
            $
            88,784







The
accompanying notes are an integral part of these financial
statements







4




VISUALANT,
INCORPORATED


(Development
Stage Company)




STATEMENTS
OF OPERATIONS


For
the Three and Six Month Periods Ended March 31, 2008 and 2007 and the Period
from


October
8, 1998 (Date of Inception) to March 31, 2008








Three
      Months Ended March 31, 2008
            
            
            Three
      Months Ended March 31, 2007
            
            
            Six
      Months Ended March 31, 2008
            
            
            Six
      Months Ended March 31, 2007
            
            
            Period
      of Inception from October 8, 1998 to March 31, 2008Revenues
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -ExpensesResearch
      and development
            
            
            -
            
            
            
            148,506
            
            
            
            -
            
            
            
            397,823
            
            
            
            1,237,417Administrative
            
            
            201,100
            
            
            
            261,298
            
            
            
            484,014
            
            
            
            525,401
            
            
            
            3,681,341Total
      Operating Expense
            
            
            201,100
            
            
            
            409,804
            
            
            
            484,014
            
            
            
            923,224
            
            
            
            4,918,758Loss
      from Operations
            
            
            (201,100
            )
            
            
            (409,804
            )
            
            
            (484,014
            )
            
            
            (923,224
            )
            
            
            (4,918,758
            )Other
      Income (Expense)Settlement
      of debt
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            43,400Interest
      expense
            
            
            (15,775
            )
            
            
            (14,256
            )
            
            
            (40,421
            )
            
            
            (25,732
            )
            
            
            (224,432
            )Loss
      of deposit
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,154,327
            )Net
      Loss
            
            $
            (216,875
            )
            
            $
            (424,060
            )
            
            $
            (524,435
            )
            
            $
            (948,956
            )
            
            $
            (6,254,117
            )Net
      Loss Applicable to Common Stockholders Basic and diluted
            
            $
            (0.01
            )
            
            $
            (0.03
            )
            
            $
            (0.03
            )
            
            $
            (0.06
            )Weighted
      Average Shares used in computing basic and diluted net loss per
      share
            
            
            18,244,001
            
            
            
            16,535,558
            
            
            
            17,710,722
            
            
            
            16,519,550








The
accompanying notes are an integral part of these financial
statements








5





VISUALANT,
INCORPORATED


(Development
Stage Company)




STATEMENTS
OF CASH FLOWS


For
the Six Months Ended March 31, 2008 and 2007 and the Period from


October
8, 1998 (Date of Inception) to March 31, 2008





Six
      Months Ended
            
            
            Six
      Months Ended
            
            
            October
      8, 1998March
      31,
            
            
            March
      31,
            
            
            to
      March 31,2008
            
            
            2007
            
            
            2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
            
            $
            (524,435
            )
            
            $
            (948,956
            )
            
            $
            (6,254,117
            )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
            
            
            140,500
            
            
            
            75,000
            
            
            
            298,456Stock
      based compensation
            
            
            69,893
            
            
            
            183,342
            
            
            
            372,617Stock
      Options Issued in exchange for services
            
            
            6,348
            
            
            
            157,571
            
            
            
            234,500Amortization
      of Deferred Financing
            
            
            16,000
            
            
            
            -
            
            
            
            28,844Loss
      of deposit
            
            
            -
            
            
            
            -
            
            
            
            1,154,327Capital
      contributions - expenses
            
            
            -
            
            
            
            -
            
            
            
            10,950Increase
      (decrease) in cash resulting from changes in assets
      and liabilities:Prepaid
      expenses
            
            
            (8,728
            )
            
            
            (18,779
            )
            
            
            (14,265
            )Accounts
      payable and accrued expenses
            
            
            300,607
            
            
            
            411,045
            
            
            
            2,816,809Net
      Cash Used in Operating Activities
            
            
            185
            
            
            
            (140,777
            )
            
            
            (1,332,071
            )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of property and equipment
            
            
            -
            
            
            
            -
            
            
            
            (12,308
            )Purchase
      of investment - deposit
            
            
            -
            
            
            
            -
            
            
            
            (1,154,327
            )Net
      Cash Used in Investing Activities
            
            
            -
            
            
            
            -
            
            
            
            (1,166,635
            )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from issuance of common stock
            
            
            -
            
            
            
            -
            
            
            
            2,022,892Proceeds
      from issuance of convertible debt
            
            
            -
            
            
            
            -
            
            
            
            425,340Proceeds
      from issuance of notes payable
            
            
            -
            
            
            
            134,766
            
            
            
            300,951Repayment
      of notes payable
            
            
            -
            
            
            
            -
            
            
            
            (250,201
            )Net
      Cash Provided by Financing Activities
            
            
            -
            
            
            
            134,766
            
            
            
            2,498,982Net
      Change in Cash
            
            
            185
            
            
            
            (6,011
            )
            
            
            276Cash
      at Beginning of Period
            
            
            91
            
            
            
            7,160
            
            
            
            -Cash
      at End of Period
            
            $
            276
            
            
            $
            1,149
            
            
            $
            276






The
accompanying notes are an integral part of these financial
statements









6
 
 VISUALANT,
INCORPORATED
 (Development
Stage Company)
  NOTES
TO FINANCIAL STATEMENTS
 December
31, 2007





1.
            ORGANIZATION





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





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






2.
            GOING
      CONCERN





The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. We have incurred net losses of approximately
$524,000 and $949,000 for the six months ended March 31, 2008 and 2007,
respectively. Our current liabilities exceeded our current assets by
approximately $1.4 million as of March 31, 2008.  Our net cash used in
operating activities approximated $185 for the six months ended March 31,
2008.





As of
March 31, 2008, the Company had minimal cash.  The Company is
considered illiquid as this cash is not considered sufficient to fund the
recurring operating and associated financing costs. The Company needs to raise
additional funding to continue its operations.  However, there can be
no assurance that financing or additional funding will be available to the
Company on favorable terms or at all. If the Company raises additional capital
through the sale of equity or convertible debt securities, the issuance of such
securities may result in dilution to existing stockholders.




We
anticipate that we will generate significant losses from operations for the
foreseeable future. As of March 31, 2008, our accumulated deficit was $6.3
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 consolidated financial statements for the year
ended September 30, 2007 includes an explanatory paragraph expressing the
substantial doubt about our ability to continue as a going concern.





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







3.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES




Recent
Accounting Pronouncements




In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, Fair Value
Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements but does not require any new fair value measurements.




SFAS 157
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. We are
evaluating the possible impact of SFAS 157 on the financial
statements.




In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, The Fair Value Option for Financial Assets and Financial Liabilities,
(“SFAS 159”). SFAS 159 permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS 159 is effective for financial statements issued for fiscal
years beginning after November 15, 2007. We have not yet determined the impact
of adopting SFAS 159 on our financial position.




7
 
 VISUALANT,
INCORPORATED
 (Development
Stage Company)
  NOTES
TO FINANCIAL STATEMENTS (Continued)
 March
31, 2008






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






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
$165,705 including related loan fees for purposes of financing ongoing
operations.




During
the first quarter of 2007, the Company entered into an additional demand note
with Coach Capital, LLC totaling $56,016 including loan
fees.   In February 2007, the Company entered into a demand note
with CEO and President, Bradley E. Sparks totaling $50,000 plus loan fees of
$750. In addition, the Company entered into another demand note with Coach
Capital, LLC during the quarter totaling $28,480 including loan fees. 
During the third quarter, all of the notes and interest payable to Coach
Capital, LLC were paid in full with funds borrowed under the Company’s new
convertible line of credit (see Note 6).  As of March 31, 2008, the
outstanding notes payable totaled $50,750 consisting of the note payable to
Sparks.  Interest expense accrues on all of the notes 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 notes
payable  will 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.






6.
            LINE
      OF CREDIT





On May 7,
2007, the Company entered into a Convertible Line of Credit Agreement with
Coventry Capital LLC., a Delaware company, pursuant to which Coventry Capital
will provide the Company with a convertible line of credit of up to $1
million.  The line of credit may be increased up to $3 million in the
event the Company achieves certain performance criteria.  The borrowed
funds will bear interest at the rate of 10% per annum, and are due in full on
May 7, 2010.  Coventry Capital, however, has the right to convert all
or part of the indebtedness into common stock of the Company at a fixed
conversion rate of $0.50 per share.  As of March 31,
2008 the balance outstanding on this convertible line of credit was
$425,340.  The Company currently is unable to borrow any additional
funds under this line of credit due to its failure to meet certain financial
covenants or conditions required by Coventry Capital.  The Company has
attributed no value to the conversion rights.




In
connection with the Coventry Capital convertible line of credit, the Company
issued 200,000 shares of common stock to the placement agent for arranging the
new financing.  The $96,000 value of the common stock upon issuance
was recorded as deferred financing costs and is being amortized over the
three-year term of the convertible line of credit.







7.
            COMMON
      CAPITAL STOCK




During the six months
ending March 31, 2008, the board of directors granted 1.5 million shares of
common stock comprised of the following transactions:




In
October, the board of directors granted and issued 100,000 shares of common
stock to a consultant for the performance of services.  These shares
were valued at $10,000 on the date of grant.




On
December 14, 2007 the board of directors granted Ron Erickson 500,000 shares of
common stock, Lynn Felsinger 300,000 shares of common stock, Dr. Masahiro
Kawahata 200,000 shares of common stock, and Jon Pepper 200,000 shares of common
stock.  The shares of common stock were issued for past services
performed.  The shares were valued at $108,000 on the date of the
grant and the shares were issued during the second quarter.





During
the second quarter  ended March 31, 2008, the board of directors
granted Marco Hegyi 200,000 shares of common stock to serve as a member of the
board.  The shares were valued at $22,500 on the date of the
grant.








8
 
 VISUALANT,
INCORPORATED
 (Development
Stage Company)
  NOTES
TO FINANCIAL STATEMENTS (Continued)
 March
31, 2008




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




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




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, 2007
            1,897,500Granted
            -Exercised
            -Expired
            -Forfeited
            -Outstanding
      as of March  31, 2008
            1,897,500
            
            $
            0.55
            
            
            
            3.02





No
options have been granted during the six months ended March 31,
2008.






9.
            SIGNIFICANT
      TRANSACTIONS WITH RELATED PARTIES





See Note
5 for discussion of notes payable issued to the Company’s CEO and President
during the quarter ended March 31, 2007.  During the fiscal year ended
September 30, 2007, Mr. Erickson advanced $49,256 of cash and incurred $549 of
expense in behalf of Visualant.  In addition to the note payable
transaction, Mr. Sparks advanced $15,000 of cash and incurred $10,800 of expense
in behalf of the Company.  During the first quarter ending December
31, 2007, Mr. Erickson advanced $18,500 to the Company.  Other than
the note payable, all amounts are recorded in the accounts payable
balance.   The directors and officers of the Company beneficially own
an aggregate 2,227,875 shares of common stock or 12.1% of the
Company.







9
 
 VISUALANT,
INCORPORATED
 (Development
Stage Company)
  NOTES
TO FINANCIAL STATEMENTS (Continued)
 March
31, 2008






10.
            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.






11.
            SUBSEQUENT
      EVENTS





On April 17, 2008 the
Companyannounced the formation of a majority owned Japanese subsidiary,
Visualant Kabushiki Kaisha (“KK”) headquartered in Tokyo,
Japan.  The Chairman of Visualant KK is Dr. Masahiro Kawahata, who
also serves as a member of the Board of Directors for Visualant,
Inc.  For 100,000 shares of its common stock, Visualant, Inc.
purchased 66% of an existing entity of which Dr. Kawahata and Ron Erickson
previously owned, and continue to own 17% each.





Visualant
KK was formed to facilitate the development of business relationships with
Japanese license partners and to help build strong relationships between
Visualant and the Japanese marketplace.  The Company sees the
expansion of Visualant into the Japanese market place as a key strategic move
which will allow it to closely align with manufacturers and systems suppliers
who can integrate the Visualant technology into solutions for their global
customer base.
































10




ITEM
      2.
            MANAGEMENT'S
      PLAN OF OPERATIONS





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




The
Company purchases its research and development services from outside third party
sources.  On March 15, 2006, the Company entered into a research and
development contract with RATLab LLC, a privately-owned research laboratory in
Seattle, Washington.  Under the contract, RATLab performs research and
development using the Company’s existing intellectual property, as well as newly
developed research and technologies in order to assist the Company with the
commercialization of its core spectral signature technologies.  During
the twelve-month period ended September 30, 2007, the Company paid approximately
$251,000 in research and development fees to RATLab LLC.  No fees were
paid to the RATLab during the six month period ended March 31,
2008.  RATLab LLC is a research laboratory formed primarily by Dr.
Thomas Furness, founder and former director of the Human Interface Technology
Lab (HIT Lab) at the University of Washington, and one of the leading
researchers in the world in the area of human interface
technology.  RATLab LLC also employs other leading scientists and
research associates in the areas of computer science, imaging technology, and
light sensing technology, who are part of the team conducting research on behalf
of the Company.




The
Company’s research and development activities under its Research and Development
Contract with RATLab LLC, however, were suspended on July 12, 2007 due to lack
of funds.  Upon receiving additional funding, developmental activities
will resume with the either the RATLab or with another outside third
party.




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  March 31, 2008, the Company had no
customers.




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






11





ITEM
      2.
            MANAGEMENT'S
      PLAN OF OPERATIONS - continued




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, 2007 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.




The
Company’s cost to continue operations as they are now conducted is approximately
$35,000 per month, and the Company does not have sufficient funds to cover
existing operations.   The Company needs to raise additional
funds in order to continue its existing operations, to resume its research and
development activities, and to finance its plans to expand its operations for
the next year.  The Company intends to raise the required funds by
obtaining share capital from outside sources.  During the twelve
months ended September 30, 2007, the Company obtained funds in the aggregate
amount of approximately $135,000 through loans from Coach Capital and Bradley E.
Sparks, CEO and President.  The Company borrowed $425,000 from
Coventry Capital during the year ended September 30, 2007 under the Convertible
Line of Credit.  Approximately $250,000 of the proceeds from the
Convertible Line of Credit were used to repay the principal due on the
Coach Capital notes payable.  During the year, operating funds were
also advanced to the Company by its Chairman, Ronald P. Erickson and salaries
were deferred.  If the Company is successful in raising additional
funds, the Company’s research and development efforts will continue and expand,
and overdue accounts payable will be satisfied.






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
period covered by this report, have concluded that 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.








12





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:
      May 20, 2008
            By:
            /s/ Bradley
      E. SparksBradley
      E. SparksChief
      Executive Officer, President, and Director




Date:
      May 20, 2008
            By:
            /s/ Bradley
      E. SparksBradley
      E. SparksChief
      Financial Officer, and Secretary Treasurer
































13