UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C.  20549
  FORM
10-Q
  x
                Quarterly
      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the quarterly period ended March 31, 2008.o
                Transition
      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the transition period _____________ to
______________.
 
 Commission File Number333-133936
 
 VISUAL
MANAGEMENT SYSTEMS, INC.
 (Exact
name of small business issuer as specified in its charter)
  Nevada
                (State
      or other jurisdiction of
                incorporation
      or organization)
              68-0634458
                (IRS
      Employer Identification Number)
  1000
Industrial Way North, Suite C
 Toms
River, New Jersey 08755
 (Address
of principal executive offices)
  (732)
281-1355
 (Issuer’s
telephone number)
 
 
 (Former
name, former address and former fiscal year, if changed since last
report)
 
 Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes xNo o
 
 Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “accelerated filer, large accelerated filer”, and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
  Large
accelerated filer  o
 Accelerated
filer o
 Non-accelerated
filer o  (Do not
check if a smaller reporting company)
 Smaller
reporting company x
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o   No
x
  As of May
15, 2008, there were 8,023,905 shares of the registrant’s common stock
outstanding.
  
  VISUAL MANAGEMENT SYSTEMS, INC.
AND SUBSIDIARIES
 INDEX
 
 PART
      I.  Financial Information
              Page
      No.Item
      1.
              Financial
      StatementsCondensed
      Consolidated Balance Sheet (Unaudited) as of March 31, 2008 and December
      31, 2007
              3Condensed
      Consolidated Statements of Operations (Unaudited) for the Three Months
      Ended March 31, 2008 and 2007
              4Condensed
      Consolidated Statements of Cash Flows (Unaudited) for the Three Months
      Ended March 31, 2008 and 2007
              5Notes
      to Condensed Consolidated Financial Statements
              6Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              9Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              11Item
      4.
              Controls
      and Procedures
              11PART
      II.  Other InformationItem
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              14Item
      3.
              Defaults
      upon Senior Securities
              14Item
      5.
              Other
      Information
              14Item
      6.
              Exhibits
              14SIGNATURES
              15
 
 2
  PART I –
FINANCIAL INFORMATION
  Item
1. FINANCIAL
STATEMENTS
  Visual
      Management Systems, Inc. and SubsidiariesCondensed
      Consolidated Balance SheetsMarch
      31, 2008
                
                
                December
      31, 2007Assets
                
                (unaudited)
                
                
                (audited)Current
      assetsCash
                
                $
                111,567
                
                
                $
                707,025Accounts
      receivable, net
                
                
                195,912
                
                
                
                296,447Inventory
                
                
                587,606
                
                
                
                605,724Prepaid
      expenses
                
                
                5,190
                
                
                
                23,931Total
      current assets
                
                
                900,275
                
                
                
                1,633,127Property
      and equipment - net
                
                
                726,786
                
                
                
                682,285Deposits
      and other assets
                
                
                90,808
                
                
                
                102,308Intangible
      assets - net
                
                
                1,659,727
                
                
                
                1,851,091Total
      Assets
                
                $
                3,377,596
                
                
                $
                4,268,811Liabilities
      and Stockholders' DeficitCurrent
      liabilitiesAccounts
      payable
                
                $
                705,074
                
                
                $
                780,521Accrued
      expenses and other current liabilities
                
                
                973,096
                
                
                
                627,445Customer
      deposits
                
                
                236,041
                
                
                
                137,160Sales
      tax payable
                
                
                78,236
                
                
                
                38,727Bank
      line of credit
                
                
                49,981
                
                
                
                49,981Current
      portion of long-term debt
                
                
                346,278
                
                
                
                347,539Current
      portion of obligations under capital leases
                
                
                53,811
                
                
                
                30,700Convertible
      notes payable
                
                
                833,333
                
                
                
                208,333Total
      current liabilities
                
                
                3,275,850
                
                
                
                2,220,406Convertible
      notes payable(net
      of current maturities and unamortized discount of
$648,333)
                $
                2,268,334
                
                
                
                2,818,334Long-term
      debt - net of current portion
                
                
                306,696
                
                
                
                346,509Obligations
      under capital leases - net of current portion
                
                
                100,554
                
                
                
                37,179Commitments
      and contingenciesStockholders'
      deficitPreferred
      stock
                
                
                1
                
                
                
                1Common
      stock
                
                
                8,002
                
                
                
                7,379Additional
      paid-in-capital
                
                
                12,744,785
                
                
                
                12,030,155Accumulated
      deficit
                
                
                (15,176,626
                )
                
                
                (13,041,152
                )Treasury
      stock, at cost
                
                
                (150,000
                )
                
                
                (150,000
                )Total
      stockholders' deficit
                
                
                (2,573,838
                )
                
                
                (1,153,617
                )Total
      Liabilities and Stockholder's Deficit
                
                $
                3,377,596
                
                
                $
                4,268,811The
      accompanying notes to the Condensed Consolidated Financial Statements are
      an integral part of these statements.
  3
  Visual
      Management Systems, Inc. and SubsidiariesCondensed
      Consolidated Statements of OperationsFor
      the Three Months Ended March 31, 2008 and 2007 (unaudited)2008
                    
                    
                    2007Revenues
      - net
                    
                    $
                    1,577,309
                    
                    
                    $
                    1,160,437Cost
      of revenues
                    
                    
                    843,113
                    
                    
                    
                    564,215Gross
      profit
                    
                    
                    734,196
                    
                    
                    
                    596,222Operating
      expenses
                    
                    
                    2,729,362
                    
                    
                    
                    1,543,078Loss
      from operations
                    
                    
                    (1,995,166
                    )
                    
                    
                    (946,856
                    )Other
      (income) expensesDebt
      conversion expense
                    
                    
                    -
                    
                    
                    
                    590,044Interest
      income
                    
                    
                    -
                    
                    
                    
                    (49
                    )Interest
      expense
                    
                    
                    140,003
                    
                    
                    
                    129,171Miscellaneous
      income
                    
                    
                    305
                    
                    
                    
                    26,013Net
      loss
                    
                    $
                    (2,135,474
                    )
                    
                    $
                    (1,692,035
                    )Per
      share data - basic and fully diluted
                    
                    $
                    (0.29
                    )
                    
                    $
                    (0.29
                    )Weighted
      average number of commonshares
      outstanding
                    
                    
                    7,442,367
                    
                    
                    
                    5,934,577The
      accompanying notes to the Condensed Consolidated Financial Statements are
      an integral part of these statements.
 4
  Visual
      Management Systems, Inc. and SubsidiariesCondensed
      Consolidated Statements of Cash FlowsFor
      the Three Months Ended March 31, 2008 and 2007 (unaudited)2008
                    
                    
                    2007Cash
      flows from operating activitiesNet
      loss
                    
                    $
                    (2,135,474
                    )
                    
                    $
                    (1,692,035
                    )Adjustments
      to reconcile net loss to net cash used by operating
    activitiesDepreciation
      and amortization
                    
                    
                    242,797
                    
                    
                    
                    26,412Non-cash
      interest expense
                    
                    
                    75,000
                    
                    
                    
                    129,000Payment
      of stock for services
                    
                    
                    690,000
                    
                    
                    
                    -Stock-based
      compensation
                    
                    
                    25,253
                    
                    
                    
                    207,740Debt
      conversion expense
                    
                    
                    -
                    
                    
                    
                    590,044Loss
      on disposition of assets
                    
                    
                    305
                    
                    
                    
                    -(Increase)
      decrease in operating assetsAccounts
      receivable
                    
                    
                    100,535
                    
                    
                    
                    22,338Inventory
                    
                    
                    18,118
                    
                    
                    
                    (44,852
                    )Prepaid
      expenses and other assets
                    
                    
                    18,741
                    
                    
                    
                    5,364Deposits
      and other assets
                    
                    
                    11,500
                    
                    
                    
                    (17,240
                    )Increase
      (decrease) in operating liabilitiesAccounts
      payable
                    
                    
                    (75,447
                    )
                    
                    
                    (118,384
                    )Accrued
      expenses and other current liabilities
                    
                    
                    345,651
                    
                    
                    
                    46,543Sales
      tax payable
                    
                    
                    39,509
                    
                    
                    
                    11,610Customer
      deposits
                    
                    
                    98,881
                    
                    
                    
                    54,032Net
      cash used by operating activities
                    
                    
                    (544,631
                    )
                    
                    
                    (779,428
                    )Cash
      flows from investing activitiesPurchases
      of property and equipment
                    
                    
                    (11,991
                    )
                    
                    
                    (12,177
                    )Proceeds
      from disposition of assets
                    
                    
                    11,143
                    
                    
                    
                    -Net
      cash used by investing activities
                    
                    
                    (848
                    )
                    
                    
                    (12,177
                    )Cash
      flows from financing activitiesRepayment
      of capital leases
                    
                    
                    (8,905
                    )
                    
                    
                    (3,647
                    )Proceeds
      from convertible notes payable (net of $12,500 issuance
    costs)
                    
                    
                    -
                    
                    
                    
                    112,500Proceeds
      from the sale of common stock
                    
                    
                    -
                    
                    
                    
                    871,230Repurchase
      of stock into treasury
                    
                    
                    -
                    
                    
                    
                    (150,000
                    )Principal
      repayments of long-term debt
                    
                    
                    (41,074
                    )
                    
                    
                    (7,879
                    )Proceeds
      from loans payable - stockholders
                    
                    
                    
                    
                    
                    
                    (4,943
                    )Net
      cash provided by financing activities
                    
                    
                    (49,979
                    )
                    
                    
                    817,261Change
      in cash
                    
                    
                    (595,458
                    )
                    
                    
                    25,656CashBeginning
      of period
                    
                    
                    707,025
                    
                    
                    
                    963End
      of period
                    
                    $
                    111,567
                    
                    
                    $
                    26,219The
      accompanying notes to the Condensed Consolidated Financial Statements are
      an integral part of these statements.
 5
  Visual
Management Systems, Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements
 March
31, 2008
 
 1. Basis
of Presentation and Nature of Business Operations
 
 The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the requirements of Form 10-Q and Item 310 of
Regulation S-B of the Securities and Exchange Commission (the “Commission”) and
include the results of Visual Management Systems, Inc., formerly known as Wildon
Productions, and Visual Management Systems Holding, Inc., Visual Management
Systems LLC and Visual Management Systems PDG, LLC, its wholly-owned
subsidiaries (the “Subsidiaries”), which are collectively referred to as the
“Company”.  Accordingly, certain information and footnote disclosures
required in the unaudited consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted.  The statements are subject to
possible adjustments in connection with the annual audit of the Company’s
accounts for the year ending December 31, 2008.  In the opinion of the
Company’s management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting only of normal
recurring adjustments) which the Company considers necessary for the fair
presentation of the Company’s consolidated financial position as of March 31,
2008 and the results of its operations for the three month periods ended March
31, 2008 and 2007, and are not necessarily indicative of results that may be
expected for the entire year.  These unaudited condensed financial
statements should be read in conjunction with the audited financial statements
and related notes included in the Company’s Annual Report for the year ended
December 31, 2007 on Form 10-K, and 8-K/A, wherein the March 31, 2007
information has been restated.
 
 The
Company delivers protective technology solutions and remote management loss
prevention surveillance systems and provides on-site consultations regarding its
products.  The Company also sells, installs, upgrades and services
Digital Video Recording Systems.  The Company is New Jersey-based and
began operations in June 2003.
  Recent
Transactions
  Acquisition of Assets of Intelligent
Digital Systems, LLC.On April 3, 2008, the Company purchased
substantially all the assets of Intelligent Digital Systems, LLC. (“IDS”). IDS
is the developer and manufacturer of the TechEye Digital Video (DVR) Recording
Technology. In exchange for IDS’ assets the Comapny issued to IDS an unsecured
convertible note in the principal amount of $1.544 million, bearing no interest
until April 3, 2011, its maturity date, and cash totaling $42,000 payable over a
total of seven months. If not converted, or paid within 30 days of maturity,
then from and after the maturity date, the convertible note will bear annual
interest at 12%. The convertible note is convertible at the discretion of IDS
into shares of common stock after May 31, 2010, or upon the approval of a
majority in interest of the holders of the then outstanding 5% secured
convertible debentures, or any securities issued on conversion thereof, at a
conversion price of $1.15 per share. The Company has agreed to provide its
Best Efforts towards registering the shares issuable upon the conversion of
the note for public resale.
  In
connection with the transaction, the Company entered into a joint venture with
IDS to obtain approval of certain patent applications formerly held by IDS that
are relevant to the surveillance industry which have been assigned to the joint
venture. The joint venture has granted the Company an exclusive license to use
the technology which is the subject of the patent applications in the
manufacture, distribution, integration and installation of digital video
surveillance devices for the security industry. If the patents are ultimately
issued, the joint venture will seek to promote and market the technology
underlying the patent applications, and will pursue claims against any parties
potentially infringing on the protected technology. Each of IDS and and the
Company has a 50% interest in the joint venture.
  6
  2.            
Going Concern
  The
accompanying financial statements have been prepared assuming the Company is a
going concern, which assumption contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company
suffered recurring losses from operations, a recurring deficiency of cash from
operations, including a cash deficiency of approximately $545,000 from
operations for the three months ended March 31, 2008.
  These
factors raise substantial doubt about the Company’s ability to continue as a
going concern. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the amount
of liabilities that might be necessary should the Company be unable to continue
in existence. Continuation of the Company as a going concern is dependent upon
achieving profitable operations in the long-term and raising additional capital
to support existing operations for at least the next twelve months. Management’s
plans to achieve profitability include, obtaining new customers and putting into
effect the a reduction of expenses.
 
 3.            
Equity Based Compensation, Common Stock and Options
  Issuance
of Stock Options to L.G. Zangani, LLC.
  In
January 2008 the Company issued 18,000 5-year options to purchase shares of the
common stock of the Company with an exercise price of $3.00, to L.G. Zangani,
LLC, as partial compensation for consummation of an agreement wherein L.G.
Zangani, LLC would provide investor relations services to the
Company.  The fair market value of these options upon issuance was
$20,218.
  Issuance
of Equity Compensation to Mirador Consulting, Inc.
  In March
2008 the Company issued 600,000 shares of common stock to Mirador Consulting,
Inc. (“Mirador”), with a fair market value of $672,000 as compensation for
modification of the September 2007 Strategic Alliance  Agreement
wherein Mirador  would provide investor relations and other services
to the Company.  Per the terms of that agreement Mirador, was issued
600,000 shares in exchange for extending the agreement for a period of one year
and for Mirador to waive the monthly cash fee.
  Issuance
of Equity Compensation to Mercom Capital Group, LLC.
  In
January 2008 the Company issued 22,500 shares of common stock to Mercom Capital
Group, LLC. (“Mercom”), with a fair market value of $18,000 as compensation in
connection with the October 2007 agreement wherein Mercom would provide investor
relations services to the Company.  Per the terms of that agreement
Mercom shall be issued 120,000 shares.  30,000 shares were issued in
2007 and the remaining 90,000 shares will be vested monthly and issued
quarterly, the first such issuance beginning in January of 2008.
  3. Commitments
and Contingencies
  Commitments
and Contingencies.
  In
September 2007 we issued a promissory note in the principal amount of $250,000
which provided for interest at a rate of 8% per annum and a maturity date of
January 4, 2008 to an individual lender. As of the date of filing of this
Report, the note remains past due and unpaid.  We are currently in
discussions with the holder of the note regarding potential payment or extension
of the Note.
  7
  In
connection with The Company's July 2007 Private Placement, the Company agreed to
use its best efforts to file a shelf registration statement (the “Resale
Registration Statement”) with the SEC covering the resale of all shares issuable
upon the conversion of the Series A Convertible Preferred Stock and the exercise
of the warrants issued in connection with the private placement on or before the
date which is sixty (60) days after the date of the final closing of the private
placement. The Company is obligated to maintain the effectiveness of the Resale
Registration Statement from its effective date through and until forty-eight
(48) months after the effective date. In the event the Resale Registration
Statement was not filed with the SEC on or prior to the date which is sixty (60)
days after the date of the final closing of the private placement or declared
effective within 120 days after the date of the final closing of the private
placement, the number of shares of common stock issuable upon conversion of the
Series A Convertible Preferred Stock will be increased, subject to the limit
described below, by two percent (2%) for each month (or portion thereof) that
the Resale Registration Statement is not so filed or effective.
  The
Company is required to use its best efforts to respond to any SEC comments to
the Resale Registration Statement on or prior to the date which is twenty (20)
business days from the date such comments are received. In the event that the
Company fails to respond to such comments within twenty (20) business days, the
number of shares of common stock issuable upon conversion of the Series A
Convertible Preferred Stock will be increased, subject to the limit described
below, by two percent (2%) for each month (or portion thereof) that a response
to the comments to such shelf registration statement has not been submitted to
the SEC.
  The
aggregate increase in the number of shares issuable upon the conversion of the
Series A Convertible Preferred Stock by reason of the failure to timely file the
Resale Registration Statement, respond to SEC comments or have the Resale
Registration Statement declared effective shall in no event exceed twenty
percent (20%).
  As of
March 31, 2007 the Company’s estimate was that it was likely its registration
statement would be declared effective by late May.  As such on April 25,
2008 we accrued an expense in the amount of $73,150 to reflect the additional
expense we expect to incur as a result of this
provision.
  Since
January 1, 2008, The Company has been required to make quarterly payments of
interest under the convertible debentures issued in our November 2007 Private
Placement. Monthly principal payments in the aggregate of $208,333 begin in
November 2008. We have the right to pay interest and monthly principal payments
in cash, or upon notice to the holders and compliance with certain equity
conditions, including having a currently effective registration statement
covering the shares of common stock issuable upon conversion of the debentures,
we can pay all or a portion of any such payment in common stock valued at a
price equal to the lesser of the then effective conversion price (initially
$0.50) or 85% of the average of the volume weighted average price, or VWAP, per
share as reported by Bloomberg L.P. for our common stock for the 10 consecutive
trading days immediately prior to the applicable payment date. If the holders of
the debentures voluntarily elect to convert all or a portion of the debentures
into common stock, the conversion price will be $.50, subject to adjustment
including full-ratchet anti-dilution protection. This could result in
substantial dilution to our existing stockholders.
  Our
ability to make payments of principal and interest required under the terms of
the debentures will depend on our financial condition and resources available at
the time that the payments become due. We did not timely pay the $15,625 and
$46,875 of interest payments due under our convertible debentures on January 1,
2008 and April 1, 2008, respectively; however, all such amounts were paid in May
2008.
  In connection with The Company's
November 2007 Private Placement, The Company also entered into a registration
rights agreement dated November 29, 2007, with the institutional investors,
pursuant to which The Company agreed to file a registration statement covering
the resale of the shares of common stock that may be issued to such investors
upon the conversion of the debentures, payment in kind, and the exercise of the
related warrants. The Company also agreed to maintain the effectiveness of the
registration statement (subject to certain limitations) for a period of time
until the holders can sell the underlying common stock without volume
restrictions under Rule 144(k) of the Securities Act of 1933, or the “Securities
Act.” If the registration statement was not declared effective by March 30,
2008, or if The Company fails to maintain the effectiveness of the registration
statement, or if This Company fails to respond in writing to comments made by
the Commission in respect of the resale registration statement within 15
calendar days after receipt of those comments, The Company are required to pay
to each investor, as partial liquidated damages, cash equal to 2% of the
aggregate purchase price paid by such investor for any securities purchased in
our November 2007 Private Placement and then held by such investor, and will be
required to pay to such investor such amount for each subsequent 30-day period,
up to a maximum aggregate liquidated damages amount of 20% of the aggregate
purchase price paid by such investor in the November 2007 Private Placement. The
Company's registration statement was not declared effective by April 30, 2008
and The Company did not respond to Commission comments regarding the
registration statement within 15 days after receipt, and The Company is
therefore in violation of this term of the registration rights agreement, and
the liquidated damages detailed above are currently accruing. The Company has
accrued an expense in the amount of $120,000 ($60,000 during the three months
ended March 31, 2008), to reflect the additional expense The Company expect to
incur as a result of this provision.
  8
  4. Subsequent
Event
  Acquisition of Intelligent Digital
Systems, LLC.
  On April
3, 2008, the Company purchased substantially all the assets of Intelligent
Digital Systems, LLC. (“IDS”). IDS is the developer and manufacturer of the
TechEye Digital Video (DVR) Recording Technology. In exchange for IDS’ assets we
issued to IDS an unsecured convertible note in the principal amount of $1.544
million, bearing no interest until April 3, 2011, its maturity date, and cash
totaling $42,000 payable over a total of seven months. If not converted, or paid
within 30 days of maturity, then from and after the maturity date, the
convertible note will bear annual interest at 12%. The convertible note is
convertible at the discretion of IDS into shares of common stock after May 31,
2010, or upon the approval of a majority in interest of the holders of the then
outstanding 5% secured convertible debentures, or any securities issued on
conversion thereof, at a conversion price of $1.15 per share.  The
Company has agreed to provide its best efforts towards registering the shares
issuable upon the conversion of the note for public resale.
  In
connection with the transaction, the Company entered into a joint venture with
IDS to obtain approval of certain patent applications formerly held by IDS that
are relevant to the security industry which have been assigned to the joint
venture. The joint venture has granted the Company an exclusive license to use
the technology which is the subject of the patent applications in the
manufacture, distribution, integration and installation of digital video
surveillance devices for the security industry. If the patents are ultimately
issued, the joint venture will seek to promote and market the technology
underlying the patent applications, and will pursue claims against any parties
potentially infringing on the protected technology. Each of IDS and the Company
has a 50% interest in the joint venture
  Item
2.    Management’s Discussion and Analysis of Financial
Condition and Results of Operations
  Overview
  On July
17, 2007, we acquired all of the outstanding capital stock of Visual Management
Systems Holding, Inc., a New Jersey corporation, in connection with the merger
of our wholly owned subsidiary with and into Visual Management Systems Holding,
Inc. In connection with the merger, we changed our corporate name from Wildon
Productions, Inc. to Visual Management Systems, Inc. and the former stockholders
of Visual Management Systems Holding, Inc. received shares of our common stock
representing approximately 76.5% of our outstanding common stock after giving
effect to the merger. In addition, our board of directors was reconstituted at
the effective time of the merger with designees of Visual Management Systems
Holding, Inc. replacing our then current board of directors. Further, at the
effective time of the merger, we abandoned our prior business plan and the
operations of Visual Management Systems Holding, Inc. acquired as a result of
the merger became our sole line of business. The merger transaction was
therefore accounted for as a reverse acquisition with Visual Management Systems
Holding, Inc. as the acquiring party and Visual Management Systems, Inc.
(formerly Wildon Productions, Inc. ) as the acquired party. Accordingly, when we
refer to our business and financial information relating to periods prior to the
merger, we are referring to the business and financial information of Visual
Management Systems Holding, Inc., unless the context otherwise
requires.
  Simultaneously
with the merger, we completed the initial closing of a private placement of
investment units consisting of shares of Series A Convertible Preferred Stock
and common stock purchase warrants, which we sometimes refer to in this Report
as our October 2007 Private Placement. We issued a total of 616 investment units
representing a total of 616 shares of Series A convertible preferred stock and
warrants to acquire 616,000 shares of our common stock in the October 2007
Private Placement, which was completed on October 25, 2007. On November 30,
2007, we completed a private placement of $3.75 million aggregate principal
amount of 5% secured convertible debentures and warrants to acquire 11,250,000
shares of our common stock to three affiliated institutional
investors.
  9
  Results
of Operations for the Quarters Ended March 31, 2008 and 2007
  The
following discussion and analysis should be read in conjunction with the
financial statements, including the notes thereto and other information
presented in this report.
  Net
Revenues
  Net
revenues increased approximately $417,000, or 36% to approximately $1.577
million during the three months ended March 31, 2008 from approximately $1.160
million during the three months ended March 31, 2007. The increase in revenues
reflects increased sales efforts, primarily through an increase in the number of
sales staff we employ.
  Cost
of Goods Sold
  Total
cost of goods sold increased approximately $279,000, or 49% to approximately
$843,000 for the three months ended March 31, 2008, from approximately $564,000
during the three months ended March 31, 2007. This increase was primarily due to
increased revenues.
  As a
result of the changes described above in revenues and cost of goods sold, gross
profit for the three months ended March 31, 2008 increased to approximately
$734,000 from approximately $596,000 for the three months ended March 31, 2007,
and gross profit as a percentage decreased to 47% for the three months ended
March 31, 2008 compared with 51% for the three months ended March 31,
2007.
  Operating
Expenses
  Operating
expenses increased approximately $1.2 million to $2.7 million for the three
months ended March 31, 2008, from approximately $1.5 million for the three
months ended March 31, 2007.
  This
increase was primarily attributable an increase in employee related expenses of
approximately $300,000 and an increase of stock for services of approximately
$700,000, and an increase in the accrual for late filing penalties of
approximately $70,000,
  Debt
Conversion Expense
  Debt
conversion expense for the three months ended March 31, 2008 decreased to zero,
from approximately $590,000 for the three months ended March 31, 2007, as the
Company did not convert any debt in 2008.
  Interest
Expense
  Interest
expense for the three months ended March 31, 2008 increased to approximately
$140,000, from approximately $129,000 in the three months ended March 31, 2007.
The increase was primarily the result of (i) higher original issue discount
amortization, totaling approximately $75,000 and (ii) interest on bridge loans
and convertible debt of approximately $60,000 offset by $125,000 of interest
expense in the first quarter of 2007 associated with a beneficial conversion
feature on convertible debt.
  10
  Net
Income (Loss)
  As a
result of the items discussed above there was a net loss of approximately $2.1
million for the three months ended March 31, 2008 compared with a net loss of
approximately $1.7 million for the three months ended March 31,
2007.
  Liquidity
and Capital Resources
  General. Expansion of
our operations required increased expenditures for marketing and personnel. We
encountered legal, accounting, filing and other professional costs associated
with our reverse acquisition transaction completed in July 2007. We did not
receive all of the anticipated benefits of the private placement offering that
we conducted in connection with our reverse acquisition transaction as the
offering was not fully subscribed as of final closing on October 25, 2007. This
situation adversely impacted our liquidity. To address this situation in a
pro-active manner we conducted a private offering of 5% secured debentures in
November 2007 and implemented a reduction in force (RIF) initiative effective
November 16, 2007, pursuant to which we restructured certain departmental
responsibilities and the allocation of assets. This restructuring consolidated
certain job responsibilities which resulted in the elimination of various
support and clerical positions representing approximately 20% of our work force.
Management believes these actions, along with other cost cutting measures will
allow us to achieve a positive cash flow position in 2008 and that the
realignment of certain departmental responsibilities will increase our
competitiveness.
  Our
financial statements are prepared on a going concern basis, which assumes that
we will realize our assets and discharge our liabilities in the normal course of
business. At March 31, 2008, we had cash of $111,567, a working capital deficit
of $2,375,575, stockholders’ deficit of $2,573,838, and an outstanding balance
of long term debt of $306,696 net of current maturities, plus $2,268,334 of
convertible debt net of current maturities, and obligations under capital leases
net of current maturities of $100,554. In comparison, at December 31, 2007, we
had cash and equivalents of approximately $707,025, a working capital deficit of
approximately $587,279, $2,818,334 of convertible debt net of current
maturities, and an outstanding balance of long term debt of $346,509, net of
current maturities. Our financial condition as of March 31, 2008 raises doubt as
to our ability to continue our normal business operations as a going
concern.  If we are unable to put into effect certain plans, we may be
required to restructure, file for bankruptcy or cease operations.
  Cash Flows from Operating Activities.
  Net
cash used by operating activities was $544,631 for the three months ended March
31, 2008 and $779,428 for the three months ended March 31, 2007.  Cash
used during the three months ended March 31, 2008 was primarily the result of
the operating loss described above offset by decreases in accounts receivable
and inventory of $118,000 and increases in current liabilities of approximately
$483,000.  For the three months ended March 31, 2007, cash used in
operations was primarily a result of the operating loss incurred during the
quarter.
  Cash
Flows from Investing Activities.
  Net
cash used in investing activities was $848 in the three months ended March 31,
2008 and $12,177 for the three month period ended March 31, 2007 representing
purchases of property and equipment net of proceeds received from an asset
disposition in the three months ended March 31, 2008, as compared to 12,177 of
equipment purchases for the corresponding period in 2007.
  Cash
Flows from Financing Activities.
  Net
cash provided by financing activities was a negative $49,979 for the three
months ended March 31, 2008 and $817,261 for the three month period ended March
31, 2007.  The negative cash from financing activities was a result of
repayment of loan and capital lease obligations during the three months ended
March 31, 2008.  For the three months ended March 31, 2007, the cash
provided by financing activities was primarily the result of $871,230 from the
issuance of common stock and $112,500 net proceeds from convertible debt offset
by $150,000 for the repurchase of stock into treasury.
 Item
3.   Quantitative and Qualitative Disclosure About Market
Risk
  We
believe that our business operations are not exposed to market risk relating to
interest rate, foreign currency exchange risk or commodity price
risk.
  Item
4.    Controls and Procedures
  As of the
end of the period covered by this Report on Form 10-Q, we carried out an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures. This evaluation was carried out under the supervision
and with the participation of our management, including our Chief Executive
Officer and Interim Chief Financial Officer, who concluded that our controls and
procedures were not effective as of the date of the evaluation. Disclosure
controls and procedures are controls and other procedures that are designed to
provide reasonable assurance that information required to be disclosed in our
reports filed or submitted under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission’s rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to
provide reasonable assurance that information required to be disclosed in our
reports filed under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer and Interim Chief Financial
Officer as appropriate to allow timely decisions regarding required
disclosure.
  11
  In
November 2007 our management and the Audit Committee of our Board of Directors
determined it was necessary to restate our Consolidated Statements of Operations
for the three and six month periods ended August 31, 2007 due to the inclusion
of inter-company sales in such items.  Because of the required
restatement of the Consolidated Statements of Operations, our Chief Executive
Officer and Chief Financial Officer concluded that as of August 31, 2007, our
disclosure controls and procedures were not effective based upon our
misinterpretation of inter-company sales and revenues.
  In April
2008, in conjunction with the audit of the Company’s financial statements as of
and for the end of the year ended December 31, 2007, our management and the
Audit Committee of our Board of Directors determined that it was necessary to
again restate our financial statements for the three and six months ended August
31, 2007 and the three and nine months ended September 30, 2007, as well as the
pro forma financial statements submitted with our Form 8K/A filed with the SEC
on January 31, 2008, due to deficiencies in our accounting practices relating to
revenue recognition , inventory, cost of goods sold and equity.
  These
failures resulted from:
  •
              misunderstandings
      of certain applications of Generally Accepted Accounting Principles (GAAP)
      and poor oversight and management of accounting staff and technology by
      our former Chief Financial Officer;•
              deficiencies
      in our information technology relating to inventory control, revenue
      recognition, financial forecasting and the management of inter-company
      transactions;•
              a
      lack of uniformity in accounting policies across subsidiaries which
      allowed and increased the number of undetected discrepancies in
      inter-company transactions;•
              the
      lack of a formal documented closing process for period ends;
      and•
              the
      lack of a formal process for developing recent period results or forward
      looking financial forecasts.
  We have
taken steps to improve our disclosure controls and procedures, including the
replacement of our Chief Financial Officer, the hiring of in-house legal
counsel, continued utilization of the oversight of an outside accounting firm in
the preparation of our financial statements, retaining additional experienced
independent accounting consultants, reorganizing our accounting department,
obtaining and implementing new policies for the entry and maintenance of
financial records, the development of processes for taking more frequent
physical inventory, and obtaining approval from our Board of Directors to
substantially upgrade our accounting software. In addition, we have engaged
Withum Smith & Brown Global Assurance to evaluate our internal controls over
financial reporting and assist us in developing internal controls which will
enable us to comply with Section 404 of the Sarbanes-Oxley Act of 2002. Other
than the changes described above, there have been no other changes in our
disclosure controls and procedures that have materially affected, or are
reasonably likely to materially affect, our disclosure controls and
procedures.
  Management
will continue to scrutinize the steps we have detailed above to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the SEC rules and forms. If upon
further evaluation the steps detailed above prove too slow or insufficient in
their totality to meet that goal, we will develop a new plan which includes
changes necessary to ensure that we comply with all relevant Commission rules
and forms.
  12
  Our
management does not expect that our disclosure controls or our internal controls
over financial reporting will prevent all error and fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, but not
absolute, assurance that the objectives of a control system are met. Further,
any control system reflects limitations on resources, and the
benefits of a control system must be considered relative to its costs. These
limitations also include the realities that judgments in decision-making can be
faulty and that breakdowns can occur because of simple error or mistake. In
addition, controls can be circumvented by the individual acts of some persons,
by collusion of two or more people or by management override of a control. A
design of a control system is also based upon certain assumptions about
potential future conditions; over time, controls may become inadequate because
of changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
may not be detected.
  13
  PART
II – OTHER INFORMATION
  Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds
  In January 2008, we issued five year
options to acquire 18,000 shares of our common stock at an exercise price of
$3.00 per share to L.G. Zangani, LLC as partial compensation under an agreement
pursuant to which L.G. Zangani provides investor relations
services.  We relied upon the exemption provided by Section 4(2) of
the Securities Act of 1933, as amended, in making such issuance.
  In March 2008, we issued 600,000 shares
of common stock to Mirador Consulting, Inc. as compensation for modification of
our Strategic Alliance Agreement pursuant to which Mirador Consulting provides
investor relations and other services to us.  We relied upon the
exemption provided by Section 4(2) of the Securities Act of 1933, as amended, in
making such issuance.
  In January 2008, we issued 22,500
shares of common stock to Mercom Capital, LLC as compensation under a strategic
alliance agreement pursuant to which Mercom provides investor relations services
to us.  We relied upon the exemption provided by Section 4(2) of the
Securities Act of 1933, as amended, in making such issuance.
  Item
3.  Defaults Upon Senior Securities
  In September 2007 we issued a
promissory note in the principal amount of $250,000 which provided for interest
at a rate of 8% per annum and a maturity date of January 4, 2008 to an
individual lender. As of the date of filing of this Report, the note remains
past due and unpaid.  We are currently in discussions with the holder
of the note regarding potential payment or extension of the Note.
  We did not timely pay the $15,625 and
$46,875 of interest payments due under our convertible debentures on January 1,
2008 and April 1, 2008, respectively; however, all such amounts were paid in May
2008.
  Item
6.  Exhibits
  Exhibit
      No.
              
              Exhibits31.1
              
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 200231.2
              
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 200232.1
              
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 200232.2
              
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
 
 14
  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.
  
  Visual Management Systems,
    Inc.(Registrant)By:
              /s/
      Jason GonzalezJason
      GonzalezPresident
      and Chief Executive OfficerDated:
      May 20, 2008By:
              /s/ Frank SchmidFrank
      SchmidInterim
      Chief Financial OfficerDated:
      May 20, 2008
 
 15
  
  EXHIBIT
INDEX
  Exhibit
      No.
              
              Exhibits31.1
              
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 200231.2
              
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 200232.1
              
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 200232.2
              
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
 16