S-1/A 1 visualant_s1a2nd.htm VISUALANT FORM S1A 2ND AMENDED visualant_s1a2nd.htm

 
As filed with the Securities and Exchange Commission on August 17 , 2011
 
Registration No. __________
 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________
 
FORM S- 1/A

AMENDMENT NO. 2
 
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________________________________
 
 
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.)
   
 
3920
 
(Primary Standard Industrial Classification Number)
   
  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)
 
 
Ronald P. Erickson, Chief Executive Officer
Visualant, Inc.
500 Union Street, Suite 406
Seattle, WA 98101
206-903-1351

(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
Copies to:
James F. Biagi, Jr.
Monahan & Biagi, PLLC
701 5th Avenue, Suite 2800
Seattle, WA  98104-7023
(206) 587-5700, (206) 587-5710 (fax)
____________________________________
 
As soon as practicable and from time to time after this registration statement becomes effective.
(Approximate date of commencement of proposed sale to the public)
 
 
 
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If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. o

If this Form is post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.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 the definitions of large accelerated filer, accelerated filer and smaller reporting Company in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  o
Non-accelerated filer  o (Do not check if a smaller reporting Company)
 
Accelerated filer  o
Smaller reporting Company  x
 
CALCULATION OF REGISTRATION FEE
 
Title of Each Class of
Securities to be Registered
Amount to be
Registered
Proposed Maximum
Offering Price
Per Unit
Proposed Maximum
Aggregate Offering
Price
Amount of
Registration
Fee
Common Stock, $0.001 par value
15,340,361 (1)
$0.22 (3)
$3,374,879.42
$391.82
 
   
(1)
The common stock being registered for resale consists of (i) 833,333 shares of common stock issued upon the exercise of a warrant granted to Coach Capital LLC on December 4, 2009; (ii) 300,000 shares of common stock issuable upon exercise of warrants granted to the Sterling Group on June 11, 2010 in connection with the sale of the Company's common stock; (iii) 2,529,314 shares of common stock sold to Seaside 88 Advisors, LLC under a Securities Purchase Agreement dated December 23, 2010; (iv) up to 3,600,000 shares of common stock that may be issued to Gemini Master Fund Limited upon conversion of its debenture under a Securities Purchase Agreement and Convertible Debenture dated May 19, 2011 and 1,800,000 shares of common stock issuable upon exercise of warrants granted to Gemini Master Fund Limited on May 19, 2011, although the number of shares covered under this prospectus with respect to shares underlying the warrants may be used in connection with the resale of shares underlying the debentures, and vice versa; (v) up to 1,200,000 shares of common stock that may be issued to Ascendiant Capital Partners LLC upon conversion of its debenture under a Securities Purchase Agreement and Convertible Debenture dated May 19, 2011 and 792,000 shares of common stock issuable upon exercise of warrants granted to Ascendiant Capital Partners LLC on May 19, 2011, although the number of shares covered under this prospectus with respect to shares underlying the warrants may be used in connection with the resale of shares underlying the debentures, and vice versa; and (vi) up to 4,285,714 shares of common stock to be sold to Ascendiant Capital Partners, LLC under a Securities Purchase Agreement dated June 17, 2011.
   
(2)
Pursuant to Rule 416 of the Securities Act, this registration statement shall be deemed to cover additional securities (i) to be offered or issued in connection with any provision of any securities purported to be registered hereby to be offered pursuant to terms that provide for a change in the amount of securities being offered or issued to prevent dilution resulting from stock splits, stock dividends, or similar transactions and (ii) of the same class as the securities covered by this registration statement issued or issuable prior to completion of the distribution of the securities covered by this registration statement as a result of a split of, or a stock dividend paid with respect to, the registered securities.
   
(3)
The registration fee is calculated pursuant to Rule 457(c) of the Securities Act based on the last reported sale price of the registrant’s common stock, $0.001 par value, on August 16 , 2011, as reported on the OTCBB.
 
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT HAS FILED A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
 
 
 
 
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

PRELIMINARY, SUBJECT TO COMPLETION, DATED AUGUST 17 , 2011.

PROSPECTUS

Visualant, Inc.

15,340,361 Shares of Common Stock

This prospectus covers the resale by the selling security holders named herein of up to 15,340,361 shares of our common stock, $.001 par value per share, including: (i) 833,333 shares of common stock issued upon the exercise of a warrant granted to Coach Capital LLC on December 4, 2009; (ii) 300,000 shares of common stock issuable upon exercise of warrants granted to the Sterling Group on June 11, 2010 in connection with the sale of the Company's common stock; (iii) 2,529,314 shares of common stock sold to Seaside 88 Advisors, LLC under a Securities Purchase Agreement dated December 23, 2010; (iv) up to 3,600,000 shares of common stock that may be issued to Gemini Master Fund Limited upon conversion of its debenture under a Securities Purchase Agreement and Convertible Debenture dated May 19, 2011 and 1,800,000 shares of common stock issuable upon exercise of warrants granted to Gemini Master Fund Limited on May 19, 2011, although the number of shares covered under this prospectus with respect to shares underlying the warrants may be used in connection with the resale of shares underlying the debentures, and vice versa; (v) up to 1,200,000 shares of common stock that may be issued to Ascendiant Capital Partners LLC upon conversion of its debenture under a Securities Purchase Agreement and Convertible Debenture dated May 19, 2011 and 792,000 shares of common stock issuable upon exercise of warrants granted to Ascendiant Capital Partners LLC on May 19, 2011, although the number of shares covered under this prospectus with respect to shares underlying the warrants may be used in connection with the resale of shares underlying the debentures, and vice versa; and (vi) up to 4,285,714 shares of common stock to be sold to Ascendiant Capital Partners, LLC under a Securities Purchase Agreement dated June 17, 2011. These securities will be offered for sale from time to time by the selling security holders identified in this prospectus in accordance with the terms described in the section entitled "Plan of Distribution." We will not receive any of the proceeds from the sale of the common stock by the selling security holders.

Our common stock trades on the OTCBB under the symbol (“VSUL”). On August 16 , 2011, the last reported sale price for our common stock as reported on OTCBB was $0.15 per share.

INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER CAREFULLY THE “RISK FACTORS” DESCRIBED IN THIS PROSPECTUS BEGINNING ON PAGE 6.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is August 17 , 2011.

No offers to sell are made, nor are offers sought, to buy these securities in any jurisdiction where the offer or sale is not permitted. The reader should assume that the information contained in this prospectus is accurate as of the date in the front of this prospectus only. Our business, financial condition, results of operations, and prospectus may have changed since that date.



 
 
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TABLE OF CONTENTS

Prospectus Summary
5
   
Risk Factors
6
   
Forward-Looking Statements
10
   
Use of Proceeds
10
   
Selling Security Holders
10
   
Plan of Distribution
11
   
Legal Matters
12
   
Experts
12
   
Business
13
   
Description of Property
18
   
Selected Financial Data
18
   
Management’s Discussion and Analysis of Financial Condition and Results of Operations
18
   
Legal Proceedings
19
   
Management
20
   
Executive Compensation
23
   
Security Ownership of Certain Beneficial Owners and Management
27
   
Certain Relationships and Related Party Transactions
28
   
Description of Securities
29
   
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
31
   
Disclosure of Commission Position of Indemnification for Securities Act Liabilities
31
   
Additional Information
32
   
Financial Statements
F-1


You may rely only on the information provided or incorporated by reference in this prospectus. Neither we nor the selling security holders have authorized anyone to provide information different from that contained in this prospectus. Neither the delivery of this prospectus nor the sale of the securities means that the information contained in this prospectus is correct after the date hereof. This prospectus is not an offer to sell or solicitation to buy the securities in any circumstances under which the offer or solicitation is unlawful.



 
 
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PROSPECTUS SUMMARY

The following summary highlights information contained elsewhere in this prospectus. It may not contain all of the information that is important to you. You should read the entire prospectus carefully, especially the discussion regarding the risks of investing in Visualant, Inc. common stock under the heading “Risk Factors,” before investing in Visualant, Inc. common stock. In this prospectus, “Visualant,” “VSUL,” “Company,” “we,” “us,” and “our” refer to Visualant, Inc.

The Offering

This prospectus covers the resale by the selling security holders named herein of up to 15,340,361 shares of our common stock, $.001 par value per share, including: (i) 833,333 shares of common stock issued upon the exercise of a warrant granted to Coach Capital LLC on December 4, 2009; (ii) 300,000 shares of common stock issuable upon exercise of warrants granted to the Sterling Group on June 11, 2010 in connection with the sale of the Company's common stock; (iii) 2,529,314 shares of common stock sold to Seaside 88 Advisors, LLC under a Securities Purchase Agreement dated December 23, 2010; (iv) up to 3,600,000 shares of common stock that may be issued to Gemini Master Fund Limited upon conversion of its debenture under a Securities Purchase Agreement and Convertible Debenture dated May 19, 2011 and 1,800,000 shares of common stock issuable upon exercise of warrants granted to Gemini Master Fund Limited on May 19, 2011, although the number of shares covered under this prospectus with respect to shares underlying the warrants may be used in connection with the resale of shares underlying the debentures, and vice versa; (v) up to 1,200,000 shares of common stock that may be issued to Ascendiant Capital Partners LLC upon conversion of its debenture under a Securities Purchase Agreement and Convertible Debenture dated May 19, 2011 and 792,000 shares of common stock issuable upon exercise of warrants granted to Ascendiant Capital Partners LLC on May 19, 2011, although the number of shares covered under this prospectus with respect to shares underlying the warrants may be used in connection with the resale of shares underlying the debentures, and vice versa; and (vi) up to 4,285,714 shares of common stock to be sold to Ascendiant Capital Partners, LLC under a Securities Purchase Agreement dated June 17, 2011. Information regarding our common stock is included in the section of this prospectus entitled “Description of Securities.”

The Company agreed to register for resale the shares covered by this prospectus as a condition to the purchase and sale of the securities listed in the preceding paragraph, which were private offerings resulting in the purchasers holding restricted securities.

The Company and our Business

We were incorporated under the laws of the State of Nevada on October 8, 1998 with authorized common stock of 200,000,000 shares at $0.001 par value. On September 13, 2002, 50,000,000 shares of preferred stock with a par value of $0.001 were authorized by the shareholders.  There are no preferred shares issued and the terms have not been determined. Our executive offices are located in Seattle, Washington.  
 
We develop low-cost, high speed, light-based security and quality control solutions for use in homeland security, anti-counterfeiting, forgery/fraud prevention, brand protection and process control applications.  Our patent-pending technology uses controlled illumination with specific bands of light, to establish a unique spectral signature for both individual and classes of items.  When matched against existing databases, these spectral signatures allow precise identification and authentication of any item or substance.  This breakthrough optical sensing and data capture technology is called Spectral Pattern Matching ("SPM"). SPM technology can be miniaturized and is easily integrated into a variety of hand-held or fixed mount configurations, and can be combined in the same package as a bar-code or biometric scanner. As of  August 17 , 2011, we had three family patent applications with the U.S. Patent Office and one patent pending in Japan.

Through our wholly owned subsidiary, TransTech, we provide security and authentication solutions to security and law enforcement markets throughout the United States.

Summary Financial Results

During the fiscal year ended September 30, 2010, we reported revenues of $2,542,627.  During the nine months ended June 30, 2011, we reported revenues of $7,036,826. We closed the acquisition of TransTech of Aurora, OR on June 8, 2010 and recorded the results from June 8, 2010 to June 30, 2011.

Certain recent developments relating to our efforts in licensing revenues, mergers and acquisitions and generation of additional liquidity, including through sales of our common stock, are described in more detail in the notes to the financial statements included in this prospectus.
 
 
 
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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. The Company has incurred net losses of $1,148,920 and $950,609 for the years ended September 30, 2010 and 2009, respectively. Our current liabilities exceeded our current assets by approximately $3.0 million as of June 30, 2011.  Our net cash used in operating activities was $440,968 for the year ended September 30, 2010.

As of June 30, 2011, the Company had $249,669 in cash. The Company needs to obtain additional financing to implement the business plan, service our debt repayments and acquire new businesses. 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.
 
The Company anticipates that it will record losses from operations for the foreseeable future. As of June 30, 2011, our accumulated deficit was $10.5 million.  The Company has limited capital resources, and operations to date have been funded with the proceeds from private equity and debt financings. These conditions raise substantial doubt about our ability to continue as a going concern. The audit report prepared by our independent registered public accounting firm relating to our financial statements for the year ended September 30, 2010 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 dependent 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.

Risks Factors

We are subject to a number of risks, which the reader should be aware of before deciding to purchase the securities in this offering. These risks are discussed in the summary below and in the section titled “Risk Factors” beginning on page 6 of this prospectus.

Corporate Information

We were incorporated under the laws of the State of Nevada on October 8, 1998. The Company’s executive offices are located 500 Union Street, Suite 406, Seattle, WA 98101. The Company’s telephone number is (206) 903-1351 and its principal website address is located at www.visualant.net. The information on our website is not incorporated as a part of this prospectus.

The Company’s Common Stock

Our common stock currently trades on the Over the Counter Bulletin Board (“OTCBB”) under the symbol “VSUL.”

RISK FACTORS

An investment in the Company’s Common Stock involves a high degree of risk. You should carefully consider the following risk factors and other information in this prospectus before deciding to invest in shares of the Company’s Common Stock. The most significant risks and uncertainties known and identified by the Company’s management are described below; however, they are not the only risks that we face. If any of the following risks actually occurs, our business, financial condition, liquidity, results of operations and prospects for growth could be materially adversely affected, the trading price of our Common Stock could decline, and you may lose all or part of your investment. You should acquire shares of our Common Stock only if you can afford to lose your entire investment. We make various statements in this section that constitute “forward-looking statements” under Section 27A of the Securities Act of 1933, as amended (the “Securities Act”). See “Forward-Looking Statements” beginning on page 10 of this prospectus.

WE WILL NEED ADDITIONAL FINANCING TO SUPPORT OUR TECHNOLOGY DEVELOPMENT, ACQUIRING OR INVESTING IN NEW BUSINESSES AND ONGOING OPERATIONS.
 
We will need to obtain additional financing to implement the business plan, service our debt repayments and acquire new businesses. There can be no assurance that we will be able to secure funding, or that if such funding is available, the terms or conditions would be acceptable to us. If the Company is unable to obtain additional financing, we may need to restructure our operations, divest all or a portion of our business or file for bankruptcy.
 
Our recent efforts to generate additional liquidity, including through sales of our common stock, are described in more detail in the financial statement notes set forth in this prospectus.
 
If we raise additional capital through borrowing or other debt financing, we will incur substantial interest expense. Sales of additional equity securities will dilute on a pro rata basis the percentage ownership of all holders of common stock. When we raise more equity capital in the future, it will result in substantial dilution to our current stockholders.

 
 
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THE SALE OF A SIGNIFICANT NUMBER OF OUR SHARES OF COMMON STOCK COULD DEPRESS THE PRICE OF OUR COMMON STOCK.
 
Sales or issuances of a large number of shares of common stock in the public market (including pursuant to the equity line of credit transaction that we entered into with Ascendiant Capital Partners, LLC) or the perception that sales may occur could cause the market price of our common stock to decline. As of August 17, 2011, there were 47.6 million shares of common stock issued and outstanding. Therefore the amount of shares being registered for resale constitutes a significant percentage of the issued and outstanding shares and the sale of all or a portion of these shares could have a negative effect on the market price of our common stock. Significant shares of common stock are held by our principal shareholders, other Company insiders and other large shareholders. As “affiliates” (as defined under Rule 144 of the Securities Act (“Rule 144”)) of the Company, our principal shareholders, other Company insiders and other large shareholders may only sell their shares of common stock in the public market pursuant to an effective registration statement or in compliance with Rule 144.
 
Some of the present shareholders have acquired shares at prices as low as $0.001 per share, whereas other shareholders have purchased their shares at prices ranging from $0.10 to $0.75 per share.
 
WE MAY ENGAGE IN ACQUISITIONS, MERGERS, STRATEGIC ALLIANCES, JOINT VENTURES AND DIVESTITURES THAT COULD RESULT IN FINANCIAL RESULTS THAT ARE DIFFERENT THAN EXPECTED. 
 
In the normal course of business, we engage in discussions relating to possible acquisitions, equity investments, mergers, strategic alliances, joint ventures and divestitures. Such transactions are accompanied by a number of risks, including:

- Use of significant amounts of cash,

- Potentially dilutive issuances of equity securities on potentially unfavorable terms,

- Incurrence of debt on potentially unfavorable terms as well as impairment expenses related to goodwill and amortization expenses related to other intangible assets, and

- The possibility that we may pay too much cash or issue too many of our shares as the purchase price for an acquisition relative to the economic benefits that we ultimately derive from such acquisition.

- The process of integrating any acquisition may create unforeseen operating difficulties and expenditures. The areas where we may face difficulties include:

- Diversion of management time, during the period of negotiation through closing and after closing, from its focus on operating the businesses to issues of integration,

- Decline in employee morale and retention issues resulting from changes in compensation, reporting relationships, future prospects or the direction of the business,

- The need to integrate each Company's accounting, management information, human resource and other administrative systems to permit effective management, and the lack of control if such integration is delayed or not implemented,
 
- The need to implement controls, procedures and policies appropriate for a public Company that may not have been in place in private companies, prior to acquisition,

- The need to incorporate acquired technology, content or rights into our products and any expenses related to such integration, and

- The need to successfully develop any acquired in-process technology to realize any value capitalized as intangible assets.

From time to time, we have also engaged in discussions with candidates regarding the potential acquisitions of our product lines, technologies and businesses. If a divestiture such as this does occur, we cannot be certain that our business, operating results and financial condition will not be materially and adversely affected. A successful divestiture depends on various factors, including our ability to:

- Effectively transfer liabilities, contracts, facilities and employees to any purchaser,

- Identify and separate the intellectual property to be divested from the intellectual property that we wish to retain,

 
 
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- Reduce fixed costs previously associated with the divested assets or business, and

- Collect the proceeds from any divestitures.

In addition, if customers of the divested business do not receive the same level of service from the new owners, this may adversely affect our other businesses to the extent that these customers also purchase other products offered by us. All of these efforts require varying levels of management resources, which may divert our attention from other business operations.

If we do not realize the expected benefits or synergies of any divestiture transaction, our consolidated financial position, results of operations, cash flows and stock price could be negatively impacted.

WE MAY INCUR LOSSES IN THE FUTURE.

We have experienced net losses since inception. There can be no assurance that we will achieve or maintain profitability.

THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE.
 
The market price of our common stock has been and is likely in the future to be volatile. Our common stock price may fluctuate in response to factors such as:
 
 
Announcements by us regarding liquidity, significant acquisitions, equity investments and divestitures, strategic relationships, addition or loss of significant customers and contracts, capital expenditure commitments, loan, note payable and agreement defaults, loss of our subsidiaries and impairment of assets,
 
Issuance of convertible or equity securities for general or merger and acquisition purposes,
 
Issuance or repayment of debt, accounts payable or convertible debt for general or merger and acquisition purposes,
 
Sale of a significant number of shares of our common stock by shareholders,
 
General market and economic conditions,
 
Quarterly variations in our operating results,
 
Investor relation activities,
 
Announcements of technological innovations,
 
New product introductions by us or our competitors,
 
Competitive activities, and
 
Additions or departures of key personnel.
 
These broad market and industry factors may have a material adverse effect on the market price of our common stock, regardless of our actual operating performance. These factors could have a material adverse effect on our business, financial condition and results of operations. 
 
FUTURE ISSUANCE OF STOCK OPTIONS, WARRANTS AND /OR RIGHTS MAY HAVE A DILUTING FACTOR ON EXISTING AND FUTURE SHAREHOLDERS.
 
The grant and exercise of stock options, warrants or rights to be issued in the future will likely result in a dilution of the value of the Company’s common shares for all shareholders.  The Company has established a Combined Incentive and Non-Qualified Stock Option Plan and may in the future issue further stock options to officers, directors and consultants which will dilute the interest of the existing and future shareholders.  Moreover, the Company may seek authorization to increase the number of its authorized shares and sell additional securities and/or rights to purchase such securities at any time in the future.  Dilution of the value of the common shares will likely result from such sales, which in turn could adversely affect the market price of our common stock.

OUR CHIEF EXECUTIVE OFFICER HAS SUBSTANTIAL INFLUENCE OVER OUR COMPANY.
 
As of August 17 , 2011, Mr. Erickson and his immediate family members, either directly or indirectly, own or control 5,206,473 shares as of the filing date or approximately 10.9% of our common stock. These Controlling Shareholders have stated in a Schedule 13D that they may be deemed to constitute a “group” for the purposes of Rule 13d-3 under the Exchange Act. Mr. Ronald P. Erickson, our Chief Executive officer, controls each of our Controlling Shareholders.
 
This group, could cause a change of control of our board of directors, if in combination with another large shareholder elects candidates of their choice to the board at a shareholder meeting, and approve or disapprove any matter requiring stockholder approval, regardless of how our other shareholders may vote. Further, under Nevada law, the group could have a significant influence over our affairs, if in combination with another large shareholder, including the power to cause, delay or prevent a change in control or sale of the Company, which in turn could adversely affect the market price of our common stock. 
 

 
 
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TRADING IN THE COMPANY’S STOCK MAY BE RESTRICTED BY BLUE SKY ELIGIBILITY AND THE SEC’S PENNY STOCK REGULATIONS.
 
The SEC has adopted regulations which generally define "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.  Under the penny stock rules, additional sales practice requirements are imposed on broker-dealers who sell to persons other than established customers and "accredited investors."  The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse.  The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market.  The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account.  The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation.  In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction.  These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to broker-dealers to trade in the Company’s securities.  

The penny stock rules may discourage investor interest in and limit the marketability of, the Company’s common stock.

RISKS ASSOCIATED WITH EQUITY LINE OF CREDIT WITH ASCENDIANT

The Securities Purchase Agreement with Ascendiant will terminate if our common stock is not listed on one of several specified trading markets (which include the OTCBB and Pink Sheets, among others), if we file protection from its creditors or if a Registration Statement on Form S-1 or S-3 is not effective.

If the price or the trading volume of our common stock does not reach certain levels, we will be unable to draw down all or substantially all of our $3,000,000 equity line of credit with Ascendiant.

The maximum draw down amount every 8 trading days under our equity line of credit facility is the lesser of $100,000 or 20% of the total trading volume of our common stock for the 10-trading-day period prior to the draw down multiplied by the volume-weighted average price of our common stock for such period. If our stock price and trading volume decline from at current levels, we will not be able to draw down all $3,000,000 available under the equity line of credit.

If we not able to draw down all $3,000,000 available under the equity line of credit or if the Securities Purchase Agreement is terminated, we may be forced to curtail the scope of our operations or alter our business plan if other financing is not available to us.
 
CONFLICT OF INTEREST.

Some of the directors of the Company are also directors and officers of other companies, and conflicts of interest may arise between their duties as directors of the Company and as directors and officers of other companies. These factors could have a material adverse effect on our business, financial condition and results of operations.

WE ARE DEPENDENT ON KEY PERSONNEL.

Our success depends to a significant degree upon the continued contributions of key management and other personnel, some of whom could be difficult to replace. We do not maintain key man life insurance covering certain of our officers. Our success will depend on the performance of our officers, our ability to retain and motivate our officers, our ability to integrate new officers into our operations and the ability of all personnel to work together effectively as a team. Our failure to retain and recruit officers and other key personnel could have a material adverse effect on our business, financial condition and results of operations.

WE HAVE LIMITED INSURANCE.
 
We have limited director and officer insurance and commercial insurance policies. Any significant claims would have a material adverse effect on our business, financial condition and results of operations. 
 
 
 
 
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FORWARD-LOOKING STATEMENTS
 
This prospectus and the documents incorporated by reference herein contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934 (“Exchange Act”). Such forward-looking statements include statements regarding, among other things, (a) our expectations about product development activities, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for working capital. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this prospectus generally. In light of these risks and uncertainties, the events anticipated in the forward-looking statements may not occur. These statements are based on current expectations and speak only as of the date of such statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise.

The information contained in this prospectus, as well as in our SEC filings, identifies important factors that could adversely affect actual results and performance. Prospective investors are urged to carefully consider such factors.

All forward-looking statements attributable to the Company are expressly qualified in their entirety by the foregoing cautionary statements.

USE OF PROCEEDS

We will not receive any proceeds from the sale of the common stock by the selling security holders. All proceeds from the sale of such securities offered by the selling security holders under this prospectus will be for the account of the selling security holders, as described below in the sections entitled “Selling Security Holders” and “Plan of Distribution.” With the exception of any brokerage fees and commissions which are the respective obligations of the selling security holders, we are responsible for the fees, costs and expenses of this offering which includes our legal and accounting fees, printing costs, and filing and other miscellaneous fees and expenses.

SELLING SECURITY HOLDERS

The following table sets forth the number of shares of our common stock which may be sold by each of the selling security holders pursuant to this prospectus, including: (i) 833,333 shares of common stock issued upon the exercise of a warrant granted to Coach Capital LLC on December 4, 2009; (ii) 300,000 shares of common stock issuable upon exercise of warrants granted to the Sterling Group on June 11, 2010 in connection with the sale of the Company's common stock; (iii) 2,529,314 shares of common stock sold to Seaside 88 Advisors, LLC under a Securities Purchase Agreement dated December 23, 2010; (iv) up to 3,600,000 shares of common stock that may be issued to Gemini Master Fund Limited upon conversion of its debenture under a Securities Purchase Agreement and Convertible Debenture dated May 19, 2011 and 1,800,000 shares of common stock issuable upon exercise of warrants granted to Gemini Master Fund Limited on May 19, 2011, although the number of shares covered under this prospectus with respect to shares underlying the warrants may be used in connection with the resale of shares underlying the debentures, and vice versa; (v) up to 1,200,000 shares of common stock that may be issued to Ascendiant Capital Partners LLC upon conversion of its debenture under a Securities Purchase Agreement and Convertible Debenture dated May 19, 2011 and 792,000 shares of common stock issuable upon exercise of warrants granted to Ascendiant Capital Partners LLC on May 19, 2011, although the number of shares covered under this prospectus with respect to shares underlying the warrants may be used in connection with the resale of shares underlying the debentures, and vice versa; and (vi) up to 4,285,714 shares of common stock to be sold to Ascendiant Capital Partners, LLC under a Securities Purchase Agreement dated June 17, 2011, pursuant to which we agreed to register for resale the shares to be issued to such entity from time to time.

We are registering these securities in order to permit the selling security holders to dispose of the shares of common stock, or interests therein, from time to time.

The selling security holders may decide to sell all, some, or none of the securities listed below.   See “Plan of Distribution.”  We cannot provide an estimate of the number of securities that any of the selling security holders will hold in the future. For purposes of this table, beneficial ownership is determined in accordance with the rules of the SEC, and includes voting power and investment power with respect to such securities.

The inclusion of any securities in the following table does not constitute an admission of beneficial ownership by the persons named below. Except as indicated in the section of this prospectus entitled “Certain Relationships and Related Party Transactions” beginning on page 28, no selling security holder has had any material relationship with us or our affiliates during the last three years. No selling security holder is a registered broker-dealer or an affiliate of a broker-dealer.

 
 
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The table below lists the selling security holders and other information regarding the beneficial ownership of the shares of common stock by each of the selling security holders. Column B lists the number of shares of common stock beneficially owned by each selling security holder as of August 17 , 2011.  Column C lists the shares of common stock covered by this prospectus that may be disposed of by each of the selling security holders. Column D lists the number of shares of common stock that will be beneficially owned by the selling security holders assuming all of the shares covered by this prospectus are sold. Column E lists the percentage of class beneficially owned based on 47,613,034 shares of common stock outstanding on August 17 , 2011.
 
   
Securities
         
Securities
       
   
Beneficially
   
Securities
   
Beneficially
   
% Beneficial
 
   
Owned Prior to
   
Being
   
Owner After
   
Ownership
 
Name of Selling Shareholder (A)
 
Offering (B)
   
Offered (C)
   
Offering (D)
   
After Offering (E)
 
Coach Capital LLC
    -       833,333       -     *  
The Sterling Group
    -       300,000       -     *  
Seaside 88 Advisors, LLC
    2,529,314       2,529,314       -     *  
Gemini Master Fund Ltd
    4,371,429       5,400,000       -     *  
Ascendiant Capital Partners, LLC
    1,457,143       6,277,714       -     *  
      8,357,886       15,340,361       -     0.0%  
* Less than 1%.
 
PLAN OF DISTRIBUTION

Each of the selling security holders named above and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on the OTCBB or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling security holders may use any one or more of the following methods when selling shares:

 
Ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
     
 
Block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
     
 
Purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
     
 
An exchange distribution in accordance with the rules of the applicable exchange;
     
 
Privately negotiated transactions;
     
 
Settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;
     
 
Broker-dealers may agree with the selling security holders to sell a specified number of such shares at a stipulated price per share;
     
 
Through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
     
 
A combination of any such methods of sale; or
     
 
Any other method permitted pursuant to applicable law.

The selling security holders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.

Broker-dealers engaged by the selling security holders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling security holders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

 
 
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In connection with the sale of the common stock or interests therein, the selling security holders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling security holders may also sell shares of the common stock short and deliver these securities to close out its short position, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling security holders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

Certain Agreements with Ascendiant Capital Partners, LLC

Ascendiant Capital Partners, LLC is an underwriter within the meaning of the Securities Act and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with sales by such selling security holder. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Ascendiant Capital Partners, LLC has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the common stock. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).

The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares. The Company has agreed to indemnify Ascendiant Capital Partners, LLC against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

Because Ascendiant Capital Partners, LLC is an “underwriter” within the meaning of the Securities Act, it will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by Ascendiant Capital Partners, LLC.

As it pertains to shares held by Ascendiant Capital Partners, LLC , we agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by Ascendiant Capital Partners, LLC without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, Ascendiant Capital Partners, LLC will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the Selling Stockholder or any other person. We will make copies of this prospectus available to Ascendiant Capital Partners, LLC and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale.

LEGAL MATTERS

Monahan & Biagi, PLLC has rendered an opinion regarding the legality of the issuance of the shares of common stock being registered in this prospectus. In the past, the Company has paid the law firm of Monahan & Biagi, PLLC for a portion of its services with the Company’s common stock.  As of the filing of this Registration Statement, Monahan & Biagi holds 341,845 shares of the Company’s common stock (which constitutes approximately 0.73% of the Registrant’s total issued and outstanding common stock) with a market value of approximately $51,277.

EXPERTS

The financial statements incorporated in this prospectus, and by reference to our Annual Reports on Form 10-K for the fiscal year ended September 30, 2010 and 2009 have been so incorporated in reliance on the report Madsen & Associates CPA’s, Inc., the Company’s independent registered public accounting firm, given on the authority of said firm as expert in auditing and accounting.
 
 
 
 
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BUSINESS
 
The Company and our Business

We were incorporated under the laws of the State of Nevada on October 8, 1998 with authorized common stock of 200,000,000 shares at $0.001 par value. On September 13, 2002, 50,000,000 shares of preferred stock with a par value of $0.001 were authorized by the shareholders.  There are no preferred shares issued and the terms have not been determined. Our executive offices are located in Seattle, Washington.  
 
We develop low-cost, high speed, light-based security and quality control solutions for use in homeland security, anti-counterfeiting, forgery/fraud prevention, brand protection and process control applications.  Our patent-pending technology uses controlled illumination with specific bands of light, to establish a unique spectral signature for both individual and classes of items.  When matched against existing databases, these spectral signatures allow precise identification and authentication of any item or substance.  This breakthrough optical sensing and data capture technology is called Spectral Pattern Matching (SPM). SPM technology can be miniaturized and is easily integrated into a variety of hand-held or fixed mount configurations, and can be combined in the same package as a bar-code or biometric scanner. As of  August 17, 2011, we had three family patent applications filed with the U.S. Patent Office and one patent pending in Japan.

Through our wholly owned subsidiary, TransTech, we provide security and authentication solutions to security and law enforcement markets throughout the United States.

Financial Results

During the fiscal year ended September 30, 2010, we reported revenues of $2,542,627.  During the nine months ended June 30, 2011, we reported revenues of $7,036,826. We closed the acquisition of TransTech of Aurora, OR on June 8, 2010 and recorded the results from June 8, 2010 to June 30, 2011.
 
Certain recent developments relating to our efforts in licensing revenues, mergers and acquisitions and generation of additional liquidity, including through sales of our common stock, are described in more detail in the notes to the financial statements included in this prospectus.

ACQUISITION OF TRANSTECH

We closed the acquisition of TransTech of Aurora, OR on June 8, 2010 and recorded the financial results of the acquisition from June 8, 2010 to June 30, 2011 in our most recent financial statements.
 
TransTech, founded in 1994, is a distributor of access control and authentication systems serving the security and law enforcement markets.   With recorded revenues of $10 million in 2009, TransTech has a respected national reputation for outstanding product knowledge, sales and service excellence.
 
This acquisition is expected to accelerate market entry and penetration through the acquisition of well-operated and positioned distributors of security and authentication systems like TransTech, thus creating a natural distribution channel for products featuring our proprietary SPM technology.
 
Our strategy for the next 18 to 24 months is to generate substantially increased revenues through the further acquisition of other high quality companies complementary to TransTech, growth of TransTech and the sale and license of SPM products. 

LICENSE AGREEMENT WITH JAVELIN

On January 3, 2011, we signed a Commercial License Agreement (“License Agreement”) with Seattle based Javelin for development of environmental diagnostic applications of our SPM technology.
 
The License Agreement, which is exclusive for environmental applications, is perpetual and lasts until the Visualant IP expires. It provides for payments of 5% of Javelin’s revenues, market-rate royalties of $15,000 in year one (which was prepaid) and increasing to $47,407 in year five and profit sharing of 25% of license or transfer of technology. Javelin has certain performance milestones by year 2 and 3. The License Agreement can be terminated by Visualant for failure of Javelin to meet the performance milestones and by Javelin with thirty days' notice.
 
ACQUISITION OF RATLAB
 
On June 7, 2011, we closed the acquisition of all Visualant related assets of the RATLab LLC (“RATLab”).

 
 
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The RATLab is a Seattle based research and development laboratory created by Dr. Tom Furness, founder and Director of the HITLab International, with labs at Seattle, University of Canterbury in New Zealand, and the University of Tasmania in Australia. Guided by Dr. Tom Furness and Dr. Brian Schowengerdt, a research scientist in the field of optics and vision science, who developed the Spectral Pattern Matching (“SPM”) technology under contract for Visualant.

With this acquisition, we have consolidated all intellectual property relating to the SPM technology.  In addition to its current authentication and security applications of SPM, the Company will now own all other applications including the important fields of medicine, agriculture, and the environment and begin the creation of the Visualant Laboratory.

Following this asset acquisition transaction, Dr. Tom Furness and Dr. Brian Schowengerdt will continue to provide technology leadership to us, under terms that are still being negotiated.

PROPOSED ACQUISITION OF EAGLE

On January 24, 2011, we signed a Letter of Intent to acquire Eagle (www.eagletechnologiesusa.com) of Brea, California. On April 1, 2011, we signed an Extension to the Letter of Intent. The acquisition is expected to close by August 31, 2011.
 
Eagle, founded by card industry leaders Greg and Ryan Hawkins and Jeff Fulmer in 2008, has rapidly emerged as the premier provider of blank PVC and polyester composite cards to the identification market.  Eagle will provide an immediate additional $1 million in annual revenue to Visualant and is projected to grow to $3 to $4 million in revenues over the next two years as Eagle increases the range and technical sophistication of its product line.

With this acquisition, we will continue with its strategic initiative to consolidate relevant security and authentication assets.  At the same time, we will provide Eagle and its management the human and capital resources necessary to rapidly accelerate its growth.  Upon the closing of this acquisition, the Eagle team will continue to manage Eagle with full profit and loss responsibility.

Warrant Agreements with Coach Capital LLC (“Coach Capital”)

On December 7, 2009, Coach received warrants to purchase 833,333 shares of the Company’s common stock at $0.15 per share.  The warrant expires 3 years from the date of issuance. On May 31, 2011, Coach exercised its warrant and received 833,333 shares of common stock.
 
Warrant Agreements with Sterling Group (“Sterling”)

On June 11, 2010, we issued a warrant for the purchase of 300,000 shares of our common stock to the Sterling Group for advisory services. The warrant was valued at $.02 per share using the Black-Scholes-Merton option valuation model. The warrant expires June 10, 2013 and is callable if registered and with five closing trading prices of our common stock over $.50 per share.
 
Securities Purchase Agreement with Seaside 88 Advisors, LLC (“Seaside”)

On December 23, 2010, we entered into a Securities Purchase Agreement (“Agreement”) with Seaside pursuant to which Seaside agreed to purchase restricted shares of our common stock from time to time over a 12-month period, provided that certain conditions are met.

Under the terms of the Agreement we agreed to sell and issue to Seaside each month for a 12-month period commencing on the closing date, restricted shares of our common stock at a price equal to the lower of (i) 60% of the average trading price of the Company’s stock during the 10 trading days immediately preceding each monthly closing date, or (ii) 70% of the average trading price for the trading day immediately prior to each monthly closing date. Visualant’s agreement to sell shares each month during said 12-month period is subject to certain conditions and limitations.  With respect to each subsequent closing, Visualant will not be obligated to sell any of its common stock to Seaside at a price lower than $0.25 per share, and Seaside’s beneficial ownership of the Company’s common stock will not exceed 9.9%. Seaside is not permitted to short sale the Company’s common stock.
 
Visualant paid Seaside’s legal fees and expenses in the amount of $25,000 for the initial closing, and agreed to pay $2,500 for each subsequent closing.  Visualant also has agreed to pay 7.0% in finder’s fees to brokers (to be paid in connection with each draw down) and issue common stock warrants.
 
 
 
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The Agreement may be terminated by Seaside upon written notice to the Company, if at any time prior to the final subsequent closing the Company consummates a financing to which Seaside is not a party.
 
The Agreement also contains certain representations and warranties of Visualant and Seaside, including customary investment-related representations provided by Seaside, as well as acknowledgements by Seaside that it has reviewed certain disclosures of the Company (including the periodic reports that the Company has filed with the SEC) and that the Company’s issuance of the shares has not been registered with the SEC or qualified under any state securities laws.  Visualant provided customary representations regarding, among other things, its organization, capital structure, subsidiaries, disclosure reports, absence of certain legal or governmental proceedings, financial statements, tax matters, insurance matters, real property and other assets, and compliance with applicable laws and regulations.  Seaside’s representations and warranties are qualified in their entirety (to the extent applicable) by the Company’s disclosures in the reports it files with the SEC.  Visualant also delivered confidential disclosure schedules qualifying certain of its representations and warranties in connection with executing and delivering the Agreement.

As of August 17 , 2011, we sold to Seaside 2,529,314 shares at a purchase price of $.302 per share, or an aggregate price of $763,650. In addition, we issued warrants to brokers to for the purchase of 177,050 shares of common shares at the purchase price of $.302 per share.

Securities Purchase Agreements with Gemini Master Fund Ltd (“Gemini”) and Ascendiant Capital Partners LLC (“Ascendiant”)

On May 19, 2011, we entered into a Securities Purchase Agreement (“Agreement”) with Gemini Master Fund, Ltd. and Ascendiant Capital Partners, LLC  (“Investors”) pursuant to which the Company issued $1.2 million in principal amount of 10% convertible debentures due May 1, 2012, together with 5-year warrants to purchase 2,400,000 shares of the Company’s common stock. The purchase price for the debentures was 83.3% of the face amount, resulting in the Company receiving $1.0 million, less legal fees, placement agent fees and expenses as set forth below.
 
The financing, led by Gemini Strategies LLC of San Diego, CA and New York, and Ascendiant Capital Partners LLC of Irvine, CA, provides capital for Visualant to continue with the execution of its strategic plans, including the funding of its planned acquisitions and the market development of its Spectral Pattern Matching Technology.

Under the terms of the Agreement, the debentures, including the amount of accrued interest thereon, are convertible at the option of the holder into shares of the Company’s common stock at a conversion price equal to the lesser of (i) $0.50 per share, or (ii) 70% of the average of the three lowest prices during the 20 trading days preceding the conversion date, subject to a floor conversion price of $0.35 per share, provided that the Company pays to the holder a compensatory amount in cash to adjust for the difference between and the conversion price and $0.35 per share. The warrants for 2.4 million shares are exercisable at a price of $0.50 per share for five years. The Agreement also provides for an additional $1.0 million investment option by the Investors to purchase an additional $1.2 million in aggregate principal amount of debentures on or before the one-year anniversary date of the Agreement.  The conversion price of these additional debentures is equal to the lesser of (i) $1.00 per share, or (ii) 70% of the average of the three lowest prices during the 20 trading days preceding the conversion date, subject to a floor conversion price of $0.70 per share subject to adjustment. The Company has agreed to file a registration statement on form S-1 to register the resale of all shares issuable in connection with the convertible debentures and warrants and have it declared effective within ninety days of the closing of the transaction.

The Company paid legal fees and expenses in the amount of $12,500. Visualant also paid $80,000 or 8.0% of the cash received and issued a five-year warrant for 192,000 shares in placement agent fees to Ascendiant Capital Markets LLC.
 
Gemini is expected to be issued up to 3,600,000 shares at conversion and received a warrant to purchase 1,800,000 shares of our common stock. Ascendiant is expected to be issued 1,200,000 shares of our common stock at conversion and received warrants to purchase a total of 792,000 shares of our common stock.
 
The Agreement may be terminated by the Investors under certain conditions. The Agreement also contains certain representations and warranties of Visualant and the Investors, including customary investment-related representations provided by the Investors, as well as acknowledgements by the Investors that it has reviewed certain disclosures of the Company (including the periodic reports that the Company has filed with the SEC) and that the Company’s issuance of the shares has not been registered with the SEC or qualified under any state securities laws.  We provided customary representations regarding, among other things, its organization, capital structure, subsidiaries, disclosure reports, absence of certain legal or governmental proceedings, financial statements, tax matters, insurance matters, real property and other assets, and compliance with applicable laws and regulations.  The Investor’s representations and warranties are qualified in their entirety (to the extent applicable) by the Company’s disclosures in the reports it files with the SEC.  We also delivered confidential disclosure schedules qualifying certain of its representations and warranties in connection with executing and delivering the Agreement.
 
 
 
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Equity Line of Credit Transaction with Ascendiant

On June 17, 2011, the Company entered into a Securities Purchase Agreement with Ascendiant, pursuant to which Ascendiant agreed to purchase up to $3,000,000 worth of shares of the Company’s common stock from time to time over a 24-month period, provided that certain conditions are met. The financing arrangement entered into by the Company and Ascendiant is commonly referred to as an “equity line of credit” or an “equity drawdown facility.”
 
Under the terms of the Securities Purchase Agreement, Ascendiant will not be obligated to purchase shares of the Company’s common stock unless and until certain conditions are met, including but not limited to the SEC declaring effective a Registration Statement (the “Registration Statement”) on Form S-1 and the Company maintaining an Effective Registration Statement which registers Ascendiant’s resale of any shares purchased by it under the equity drawdown facility. The customary terms and conditions associated with Ascendiant’s registration rights are set forth in a Registration Rights Agreement that was also entered into by the parties on June 17, 2011.
 
Once the registration is declared effective, the Company has the right to sell and issue to Ascendiant, and Ascendiant will be obligated to purchase from the Company, up to $3,000,000 worth of shares of the Company’s common stock over a 24-month period beginning on such date (the “Commitment Period”). The Company will be entitled to sell such shares from time to time during the Commitment Period by delivering a draw down notice to Ascendiant. In such draw down notices, the Company will be required to specify the dollar amount of shares that it intends to sell to Ascendiant, which will be spread over a five-trading-day pricing period. For each draw, the Company will be required to deliver the shares sold to Ascendiant by the second trading day following the pricing period.   Ascendiant is entitled to liquidated damages in connection with certain delays in the delivery of its shares.
 
The Securities Purchase Agreement also provides for the following terms and conditions: 
     
 
Purchase Price - 90% of the Company’s volume-weighted average price (“VWAP”) on each trading day during the five-trading-day pricing period, unless the lowest VWAP or closing bid price (“Market Price”) on the trading day before settlement is lower, in which case the Purchase Price shall be the Market Price less $.01.
     
  
Threshold Price – The Company may specify a price below which it will not sell shares during the applicable five-trading-day pricing period. If the VWAP falls below the threshold price on any day(s) during the pricing period, such day(s) will be removed from the pricing period (and Ascendiant’s investment amount will be reduced by 1/5 for each such day).
     
 
Maximum Draw - 20% of the Company’s total trading volume for the 10-trading-day period immediately preceding the applicable draw down, times the average VWAP during such period (but in no event more than $100,000).
     
 
Minimum Draw - None.
     
  
Minimum Time Between Draw Down Pricing Periods - Three trading days.
     
  
Minimum Use of Facility – The Company is not obligated to sell any shares of its common stock to Ascendiant during the Commitment Period.
     
 
Commitment Fees - 5% ($150,000), payable in shares of Company common stock based on the following schedule: $75,000 worth of restricted shares to be delivered at initial closing, $25,000 worth of shares if and when the S-1 is declared effective, and $25,000 worth of shares at 30 and 60 days).
     
 
Other Fees and Expenses – $7,500 payable in cash or shares of common stock.
     
 
Indemnification - Ascendiant is entitled to customary indemnification from the Company for any losses or liabilities it suffers as a result of any breach by the Company of any provisions of the Securities Purchase Agreement, or as a result of any lawsuit brought by any stockholder of the Company (except stockholders who are officers, directors or principal stockholders of the Company).
     

 
 
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Conditions to Ascendiant’s Obligation to Purchase Shares - Trading in the Company’s common stock must not be suspended by the SEC or other applicable trading market; the Company must not have experienced a material adverse effect; all liquidated damages and other amounts owing to Ascendiant must be paid in full; the Registration Statement must be effective with respect to Ascendiant’s resale of all shares purchased under the equity drawdown facility; there must be a sufficient number of authorized but unissued shares of the Company’s common stock; and the issuance must not cause Ascendiant to own more than 9.99% of the then outstanding shares of the Company’s common stock.
     
 
Termination - The Securities Purchase Agreement will terminate if the Company’s common stock is not listed on one of several specified trading markets (which include the NYSE AMEX, OTC Bulletin Board and Pink Sheets, among others); if the Company files for protection from its creditors; or if the Registration Statement was not declared effective by the SEC by the date nine months following the date of the Securities Purchase Agreement. . The Company may terminate the Securities Purchase Agreement with five days’ notice.
 
The Securities Purchase Agreement also contains certain representations and warranties of the Company and Ascendiant, including customary investment-related representations provided by Ascendiant, as well as acknowledgements by Ascendiant that it has reviewed certain disclosures of the Company (including the periodic reports that the Company has filed with the SEC) and that the Company’s issuance of the shares has not been registered with the SEC or qualified under any state securities laws. The Company provided customary representations regarding, among other things, its organization, capital structure, subsidiaries, disclosure reports, absence of certain legal or governmental proceedings, financial statements, tax matters, insurance matters, real property and other assets, and compliance with applicable laws and regulations. The Company’s representations and warranties are qualified in their entirety (to the extent applicable) by the Company’s disclosures in the reports it files with the SEC. The Company also delivered confidential disclosure schedules qualifying certain of its representations and warranties in connection with executing and delivering the Securities Purchase Agreement.
 
The shares to be issued by the Company to Ascendiant under the Securities Purchase Agreement will be issued in private placements in reliance upon the exemption from the registration requirements set forth in the Securities Act provided for in Section 4(2) of the Securities Act, and the rules promulgated by the SEC thereunder.

The Company expects to issue up to 4,285,714 shares of common stock to be sold to Ascendiant Capital Partners, LLC under a Securities Purchase Agreement dated June 17, 2011.

Industry Overview

Visualant’s SPM technology resides in the general marketplace for spectroscopy (measurement of light according to its spectrum) and spectrometry (the measurement of the chemical or atomic components as a function of light reflected or absorbed by them).  These analytic tools are typically fragile and expensive often costing tens or hundreds of thousands of dollars.  The Visualant SPM technology is flexible, sturdy and has a very low cost.

The Visualant SPM technology can used to create low cost, ubiquitous analytic devices that can be used in numerous applications in the broad security and authentication market. There is no room for error in security and authentication, hence the industry requires layers of redundancies in order to provide hoped for failsafe security.   The security and authentication industry uses numerous tools in its pursuit of security.  These include RFID chips and holograms for access control cards, threads and holograms in currency, and other means of marking to thwart counterfeiting.  Visualant SPM technology provides a level of redundancy without the addition of any specific marking.  The SPM technology simply sees the colors present and determines the accuracy of those colors against the prescribed standard.  In this case, Visualant SPM technology exists in the broad industry of component providing solutions for security and authentication.
 
TransTech, our wholly-owned subsidiary, is a security and authentication distribution company selling products to over 500 dealers in the United States.  TransTech’s products include a variety of security and authentication products including printers, access control devices and numerous components.   Distribution is fragmented in the security and authentication marketplace.  There are large companies, including Scan Source Security, Wynit, Inc. and Plasco ID, who increasingly sell directly to customers via the Internet and smaller regional and national distributors who sell to these same customers and provide value added services and support.  Often called value added resellers or VARs, distributors such as TransTech work hard to maintain their customers through service and support.

Employees

As of August 17 , 2011 we had thirteen full-time, two part-time employees and four contractors. Most employees were based in Oregon.

 
 
17

 
 

The Chief Executive Officer and Chief Financial Officer are based out of the Seattle, Washington office.

DESCRIPTION OF PROPERTY

Corporate Offices
 
Our executive office is located at 500 Union Street, Suite 406, Seattle, Washington, USA, 98101. On January 1, 2011, we entered into a lease with a party affiliated with our Chief Executive Officer. We pay $799 per month. The lease is cancellable with ten days' notice.

TransTech Facilities

TransTech leases a total of approximately 9,750 square feet of office and warehouse space for its administrative offices, product inventory and shipping operations, at a monthly rental of $4,292. The lease was extended from March 2011 for an additional five year term at a monthly rental of $4,721. There are two additional five year renewals with a set accelerating increase of 10% per 5 year term.  TransTech also leases additional 500 square feet of off-site space at $250 per month from a related party.

SELECTED FINANCIAL DATA
 
The financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus. We derived the financial data as of and for the nine months ended June 30, 2011 and the years ended September 30, 2010, 2009 and 2008 from our financial statements included in this prospectus. The historical results are not necessarily indicative of the results to be expected for any future period. All monetary amounts are expressed in U.S. dollars.
 
   
9 Months Ended,
   
Years Ended September 30,
 
   
June 30, 2011
   
2010
   
2009
   
2008
   
2007
   
2006
 
(in thousands, except for per share data)
                                   
STATEMENT OF OPERATIONS DATA:
                                   
Revenue
  $ 7,037     $ 2,543     $ -     $ -     $ -     $ -  
Net loss
    (1,720 )     (1,147 )     (951 )     (945 )     (1,635 )     (1,032 )
Net loss applicable to Visualant, Inc. common shareholders
    (1,729 )     (1,149 )     (951 )     (945 )     (1,635 )     (1,032 )
Net loss per share
    (0.04 )     (0.04 )     (0.03 )     (0.05 )     (0.10 )     (0.06 )
                                                 
BALANCE SHEET DATA:
                                               
Total assets
    4,708       4,144       12       2       89       7  
Stockholder's deficiency
    (1,291 )     (1,900 )     (1,366 )     (2,135 )     (1,478 )     (473 )
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Forward-looking statements in this prospectus reflect the good-faith judgment of our management and the statements are based on facts and factors as we currently know them. Forward-looking statements are subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, but are not limited to, those discussed below and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as those discussed elsewhere in this prospectus. Readers are urged not to place undue reliance on these forward-looking statements which speak only as of the date of this report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of the prospectus.

Summary of Recent Business Operations for the Nine Months Ended June 30, 2011

Net revenue for the nine months ended June 30, 2011 increased $6,592,000 to $7,037,000 as compared to $445,000 for the nine months ended June 30, 2010. Net loss for the nine months ended June 30, 2011 was $1,720,000 as compared to a net loss of $852,000 for the nine months ended June 30, 2010 for the reasons discussed above. The net loss included non-cash expenses of $889,000 and other business development and investor relation expenditures to expand the business.
 
We closed the acquisition of TransTech of Aurora, OR on June 8, 2010 and recorded the results from June 8, 2010 to June 30, 2011.
 
Certain recent developments relating to our efforts in licensing revenues, mergers and acquisitions and generation of additional liquidity, including through sales of our common stock, are described in more detail in the notes to the financial statements included in this prospectus.

Summary of Recent Business Operations Year Ended September 30, 2010

Net revenue for the year ended September 30, 2010 increased $2,543,000 to $2,543,000 as compared to $0 for the year ended September 30, 2009.
 
 
 
18

 
 
 
We closed the acquisition of TransTech of Aurora, OR on June 8, 2010 and recorded the results from June 8, 2010 to September 30, 2010.
 
Net loss for the year ended September 30, 2010 was $1,147,000 as compared to a net loss of $951,000 for the year ended September 30, 2009.

Certain recent developments relating to our efforts in licensing revenues, mergers and acquisitions and generation of additional liquidity, including through sales of our common stock, are described in more detail in the notes to the financial statements included in this prospectus.

Liquidity and Capital Resources

As of June 30, 2011

We had cash of $200,000, a net working capital deficit of approximately $3.0 million and total indebtedness of $2.7 million as of June 30, 2011.
 
We will need to obtain additional financing to implement the business plan, service our debt repayments and acquire new businesses. There can be no assurance that we will be able to secure funding, or that if such funding is available, whether the terms or conditions would be acceptable to us.
 
Volatility and disruption of financial markets could affect our access to credit. The current difficult economic market environment is causing contraction in the availability of credit in the marketplace. This could potentially reduce or eliminate the sources of liquidity for the Company.
 
If the Company is unable to obtain additional financing, we may need to restructure our operations, divest all or a portion of our business or file for bankruptcy.

As of September 30, 2010

We had cash of $83,937, a net working capital deficit of approximately $2.7 million and total indebtedness of $ 6.0 million as of September 30, 2010.
 
We will need to obtain additional financing to implement the business plan, service our debt repayments and acquire new businesses. There can be no assurance that we will be able to secure funding, or that if such funding is available, whether the terms or conditions would be acceptable to us.
 
Volatility and disruption of financial markets could affect our access to credit. The current difficult economic market environment is causing contraction in the availability of credit in the marketplace. This could potentially reduce or eliminate the sources of liquidity for the Company.
 
If the Company is unable to obtain additional financing, we may need to restructure our operations, divest all or a portion of our business or file for bankruptcy.

Recent and Expected Losses

We have experienced net losses since inception. There can be no assurance that we will achieve or maintain profitability.

Quantitative and Qualitative Disclosures about Market Risk

We have no investments in any market risk sensitive instruments either held for trading purposes or entered into for other than trading purposes.

LEGAL PROCEEDINGS

There are no pending legal proceedings against us that are expected to have a material adverse effect on our cash flows, financial condition or results of operations.
 
 
 
 
19

 

 
MANAGEMENT
 
Our directors and executive officers, their ages, their respective offices and positions, and their respective dates of election or hire are as follows:

Business Experience Descriptions

Name
 
Age
 
Positions and Offices Held
 
Since
Ronald P. Erickson
  67  
Chief Executive Officer, President and Director
 
April 24, 2003
             
Mark Scott
  58  
Chief Financial Officer and Secretary
 
May 1, 2010
             
James Gingo
  59  
Management Director
 
June 8, 2010
             
Bradley E. Sparks
  64  
Management Director
 
November 10, 2006
             
Jon Pepper
  60  
Independent Director
 
April 19, 2006
             
Dr. Masahiro Kawahata
  74  
Independent Director
 
April 19, 2006
             
Marco Hegyi
  53  
Chairman of the Board, Independent Director
 
February 14, 2008
             
Yoshitami Arai
  80  
Independent Director
 
October 8, 2008
             
Paul R. Bonderson, Jr.
  59  
Independent Director
 
June 8, 2010

Our Management Directors

RONALD P. ERICKSON has been a director and officer of the Company since April 24, 2003. He currently serves as the Company’s Chief Executive Officer and President.  He was appointed to the positions of CEO and President on November 10, 2009. Earlier, he was appointed President and Chief Executive Officer of the Company on September 29, 2003, and resigned from this position on August 31, 2004 at which time he was appointed Chairman of the Board. A seasoned executive with more than 30 years of experience in the high technology, telecommunications, micro-computer, and digital media industries, Mr. Erickson was the founder of Visualant. In addition to his Visualant responsibilities he also serves as Chairman of ivi, Inc. a streaming media company and eCharge Corporation an Internet based transaction processing company. He is formerly Chairman, CEO and Co-Founder of Blue Frog Media, a mobile media and entertainment company; Chairman, CEO and Co-founder of GlobalTel Resources, a provider of telecommunications services; Chairman, Interim President and CEO of Egghead Software, Inc. the large software reseller where he was an original investor; Chairman and CEO of NBI, Inc.; and Co-founder of MicroRim, Inc. the database software developer. Earlier, Mr. Erickson practiced law in Seattle and worked in public policy in Washington, DC and New York, NY. Additionally, Mr. Erickson has been an angel investor and board member of a number of public and private technology companies.  In addition to his business activities Mr. Erickson serves on the Board of Trustees of Central Washington University where he received his BA degree. He also holds a MA from the University of Wyoming and a JD from the University of California, Davis. He is licensed to practice law in the State of Washington and the District of Columbia.

JAMES GINGO has served as a director since June 8, 2010.  He is the President and founder of TransTech Systems, Inc. (“TransTech”), since it was founded. TransTech is a distributor of access control and authentication systems serving the security and law enforcement markets. TransTech was acquired by the Company on June 8, 2010 and is a wholly owned subsidiary. James Gingo is a highly regarded industry veteran and one of the early members of the Document Security Alliance, an organization co-founded by the United States Secret Service and concerned industry representatives after the events of 9/11. He sits on the Board of the Security Industry Association.

BRADLEY E. SPARKS currently serves as a director. On November 12, 2009, Mr. Sparks resigned as the Company’s Chief Executive Officer and President.  He held these positions since November 2006.  Mr. Sparks currently serves as the Chief Financial Officer for Laredo Oil, Inc.  Before joining Visualant in 2006, he served as Chief Financial Officer of WatchGuard Technologies, Inc. from 2005-2006.  Previous to WatchGuard, he was the founder and managing director of Sunburst Growth Ventures, LLC, a private investment firm specializing in emerging-growth companies.  Earlier, he founded Pointer Communications and served as Chief Financial Officer for several publicly-held telecommunications companies, including eSpire Communications, Inc., Digex, Inc., Omnipoint Corporation, and WAM!NET.  He also served as Vice President and Treasurer of MCI Communications from 1988-1993 and as Vice President and Controller from 1993-1995.  Before his tenure at MCI, Mr. Sparks held various financial management positions at Ryder System, Inc.  Mr. Sparks also serves on the Board of Directors for iCIMS, a privately--held software company and Comrise China, also a privately—held company. Mr. Sparks graduated from the United States Military Academy at West Point and is a former Army Captain in the Signal Corps. He has an MS in Management from the Sloan School of Management at MIT and is a licensed CPA in Florida.
 
 
 
20

 
 
Our Independent Directors

JON PEPPER has served as an independent director since April 19, 2006. Mr. Pepper is the co-founder of Pepcom [www.pepcom.com], an industry leader at producing press-only technology showcase events around the country. Prior to that Pepper started the DigitalFocus newsletter, a ground-breaking newsletter on digital imaging that went to leading influencers worldwide. Pepper has been closely involved with the high technology revolution since the beginning of the personal computer era. He was formerly a well-regarded journalist and columnist; his work on technology subjects appeared in The New York Times, Fortune, PC Magazine, Men's Journal, Working Woman, PC Week, Popular Science and many other well-known publications. Pepper was educated at Union College in Schenectady, New York and the Royal Academy of Fine Arts in Copenhagen.

DR. MASAHIRO KAWAHATA has served as an independent director since April 19, 2006. Dr. Kawahata is the former Director of the Fujitsu Research Institute. He is known in Japan as "the father of multimedia" for his work as National Program Director in developing the nationwide fiber optic network. Early in 2005, the U.S. Government officially acknowledged him as "Non-U.S. Scientist of Extraordinary Ability". Dr. Kawahata has taught at Tokai University, is a Consulting Professor at Stanford University, Provost's Distinguished Professor at the University of Southern California and Visiting Professor at the University of Washington. He has served as a Director of numerous technology companies, and has received several prestigious awards in the United States and Japan.
 
MARCO HEGYI has served as an independent director since February 14, 2008 and as Chairman of the Board since May 2011. Mr. Hegyi has been a principal with the Chasm Group since 2006, where he combines his expertise in, and passion for helping companies expand their businesses with innovative technologies and collaborative partnership strategies using mobile and wireless platforms, service business models and Internet marketing programs. Prior to working as a strategic advisor, Mr. Hegyi served as Senior Director, Global Product Management, at Yahoo Search Marketing during 2006. Prior to Yahoo, Mr. Hegyi was at Microsoft leading program management for Microsoft Windows and Office beta releases aimed at software developers from 2001 to 2006. While at Microsoft, he formed new service concepts and created operating programs to extend the depth and breadth of the company’s unparalleled developer eco-system, including managing offshore, outsource teams in China and India, and being the named inventor of a filed Microsoft patent for a business process in service delivery. Mr. Hegyi earned a Bachelor of Science degree in Information and Computer Sciences from the University of California, Irvine, and has completed advanced studies in innovation marketing, advanced management, and strategy at Harvard Business School, Stanford University, UCLA Anderson Graduate School of Management, and MIT Sloan School of Management. 

YOSHITAMI ARAI has served as an independent director since October 8, 2008. Mr. Arai brings strategic experience, a broad global business network, and sophisticated business acumen to the board. He has performed in many professional and civic capacities throughout Japan and abroad, and has served as Director and Senior Executive of international organizations including 7-Eleven, Tokyo Hotels, Systems International, Catalina Marketing and Sony.

PAUL R. BONDERSON, JR. has served as an independent director since June 8, 2010. Mr. Bonderson has more than 30 years of technical experience in the computer industry, spanning both hardware and software engineering, engineering management, and product development. Prior to co-founding Brocade Communications Systems in 1995, Bonderson held engineering management positions at industry leading companies including Intel Corporation and Sun Microsystems, Inc. Since retiring from Brocade, Bonderson has been an active philanthropist. He is a member of the Board of Trustees of the Wetlands America Trust, Inc., the organization responsible for managing the endowment and land holdings of Ducks Unlimited. He is also a Senior Advisory Vice President and Board Member of Ducks Unlimited. Additionally, Mr. Bonderson serves on the Advisory Committee of the School of Engineering and the Foundation Board of California Polytechnic State University, San Luis Obispo, California.

Other Executive Officers

MARK SCOTT has served as Chief Financial Officer, Secretary and Treasurer since May 2010. He has significant financial, capital market and relations experience in public microcap companies. Mr. Scott continues to serve as Chief Financial Officer of IA Global, Inc., a position he has held since October 2003, Chief Financial Officer of WestMountain Index Advisor, Inc., a position he has held since February 2011 and Chief Financial Officer of Sonora Resources Corp., a position he has held since June 2011. Previously, he held executive financial positions with Digital Lightwave; Network Access Solutions; and Teltronics, Inc. He has also held senior financial positions at Protel, Inc., Crystals International, Inc., Ranks Hovis McDougall, LLP and Brittania Sportswear, and worked at Arthur Andersen. As a member of the National Association of Corporate Directors, Mr. Scott is a certified corporate director. Mr. Scott is also a certified public accountant and graduated from the University of Washington with a Bachelor of Arts in Accounting.

Family Relationships
 
There are no family relationships among our directors and executive, except for Mr. Erickson and Mr. Sparks, who are first cousins.
 
 
 
21

 

 
Involvement in Certain Legal Proceedings

None of our directors or executive officers has, during the past five years:

 
Had any petition under the federal bankruptcy laws or any state insolvency law filed by or against, or had a receiver, fiscal agent, or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

 
Been convicted in a criminal proceeding or a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
     
 
Been the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
     
 
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
     
 
Engaging in any type of business practice; or
     
 
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;
     
 
Been the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any federal or state authority barring, suspending, or otherwise limiting for more than 60 days the right of such person to engage in any activity described in (i) above, or to be associated with persons engaged in any such activity;
     
 
Been found by a court of competent jurisdiction in a civil action or by the SEC to have violated any federal or state securities law, where the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated; or
     
 
Been found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, where the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended, or vacated.

Committees of the Board of Directors

The Board has three standing committees to facilitate and assist the Board in the execution of its responsibilities. The committees are currently the Audit Committee, the Nominations and Governance Committee and the Compensation Committee. The Committees were formed July 22, 2010. The Compensation committee is comprised solely of non-employee, independent directors. The Nominations and Governance committee has one management director, Jim Gingo as Chairman. The Audit Committee has one management director, Bradley Sparks as chairman. Charters for each committee are available on the Company’s website at www.visualant.net. The table below shows current membership for each of the standing Board committees.

Audit
 
Compensation
 
Nominating
         
Bradley E. Sparks (Chairman)
 
Marco Hegyi  (Chairman)
 
Jim Gingo (Chairman)
Marco Hegyi
 
Yoshitami Arai
 
Paul Bonderson
Jon Pepper
 
Jon Pepper
 
Dr. Kawahata
 
Director Independence
 
The Board has affirmatively determined that each of Messrs. Pepper, Kawahata, Hegyi, Arai and Bonderson is an independent director.  For purposes of making that determination, the Board used NASDAQ’s Listing Rules even though the Company is not currently listed on NASDAQ.
 
 
 
22

 

 
Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee during the fiscal year that ended on September 30, 2010 served as an officer, former officer, or employee of the Company or participated in a related party transaction that would be required to be disclosed in this proxy statement. Further, during this period, no executive officer of the Company served as:

 
a member of the Compensation Committee (or equivalent) of any other entity, one of whose executive officers served as one of our directors or was an immediate family member of a director, or served on our Compensation Committee; or
     
 
a director of any other entity, one of whose executive officers or their immediate family member served on our Compensation Committee.

Code of Conduct and Ethics

We have adopted conduct and ethics standards titled the Code of Conduct and Ethics (the “Code of Conduct”), which are available at www.visualant.net. These standards were adopted by the Board to promote transparency and integrity. The standards apply to the Board, executives and employees. Waivers of the requirements of the Code of Conduct or associated polices with respect to members of the Board or executive officers are subject to approval of the full Board.

The Company’s Code of Conduct includes the following:

- promotes honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest;

- promotes the full, fair, accurate, timely and understandable disclosure of the Company’s financial results in accordance with applicable disclosure standards, including, where appropriate, standards of materiality;

- promotes compliance with applicable SEC and governmental laws, rules and regulations;

- deters wrongdoing; and

- requires prompt internal reporting of breaches of, and accountability for adherence to, the Code of Conduct.

On an annual basis, each director and executive officer is obligated to complete a Director and Officer Questionnaire which requires disclosure of any transactions with the Company in which the director or executive officer, or any member of his or her immediate family, have a direct or indirect material interest. Pursuant to the Code of Conduct, the Audit Committee and the Board are charged with resolving any conflict of interest involving management, the Board and employees on an ongoing basis.

EXECUTIVE COMPENSATION

The following table provides information concerning remuneration of the chief executive officer, the chief financial officer and another named executive officer for the fiscal years then ended September, 2010, 2009 and 2008.

Summary Compensation Table

                                                   
                             
Non-Equity
                 
                             
Incentive
                 
                       
Stock
 
Plan
 
Option
 
Other
     
           
Salary
 
Bonus
 
Awards
 
Compensation
 
Awards
 
Compensation
 
Total
Name
 
Principal Position
     
($) (1)
 
($)
 
($) (2)
 
($)
 
($) (3)
 
($) (4)
 
($)
Salary-
                                                 
Ronald Erickson
 
Chief Executive Officer
 
9/30/2010
 
$
 
$
 
$
40,000
 
$
 
$
52,662
 
$
 
$
92,662
   
Chairman of the Board
 
9/30/2009
 
$
 
$
 
$
 
$
 
$
 
$
 
$
       
9/30/2008
 
$
 
$
 
$
 
$
 
$
 
$
 
$
                                                   
Mark Scott
 
Chief Financial Officer
 
9/30/2010
 
$
 
$
 
$
20,000
 
$
 
$
 
$
10,000
 
$
30,000
   
Secretary
 
9/30/2009
 
$
 
$
 
$
 
$
 
$
 
$
 
$
       
9/30/2008
 
$
 
$
 
$
 
$
 
$
 
$
 
$
                                                   
Bradley E. Sparks
 
Former Chief Executive Officer
 
9/30/2010
 
$
28,000
 
$
 
$
 
$
 
$
 
$
 
$
28,000
   
Director
 
9/30/2009
 
$
240,000
 
$
 
$
 
$
 
$
139,786
 
$
 
$
379,786
       
9/30/2008
 
$
240,000
 
$
 
$
 
$
 
$
139,786
 
$
 
$
379,786
                                                   
James Gingo
 
Chief Executive Officer,
 
9/30/2010
 
$
62,649
 
$
 
$
 
$
 
$
 
$
 
$
62,649
   
TransTech Systems, Inc.
 
9/30/2009
 
$
 
$
 
$
 
$
 
$
 
$
 
$
       
9/30/2008
 
$
 
$
 
$
 
$
 
$
 
$
 
$
 
 
 
23

 

 
(1)         The amounts for Mr. Sparks include salary accrued, but not paid to Mr. Sparks. The amount for Mr. Gingo includes salary from June 8, 2010 to September 30, 2010.   TransTech was acquired June 8, 2010.

(2)          The 2010 amount for Mr. Erickson reflects 2,000,000 shares of restricted common stock issued by the Company on May 10, 2010. The restricted common stock was issued at the closing bid price of $.02 per share on May 7, 2010. The 2010 amount for Mr. Scott reflects 1,000,000 shares of restricted common stock issued by the Company on May 10, 2010. The restricted common stock was issued at the closing bid price of $.02 per share on May 7, 2010.

(3)         These amounts reflects the dollar amount recognized for financial statement reporting purposes for the fiscal years then ended September 30, 2010, 2009 and 2008, in accordance with FASB ASC Topic 718 of awards pursuant to the 2005 Stock Option Plan. Assumptions used in the calculation of this amount are included in footnotes to the Company's audited financial statements for the fiscal years then ended September 30, 2010, 2009 and 2008.

(4)         The 2010 amount for 2010 for Mr. Scott includes consulting fees paid from May 5, 2010 to September 30, 2010.

Grants of Stock Based Awards (Not Granted Under Any Plan) in Fiscal Year Then Ended September 30, 2010

                       
         
 All Other
   
   
Estimated Future
Estimated Future
 All Other
 Option Awards;
   
   
 Payouts Under
Payouts Under
 Stock Awards;
 Number of
   
   
Non-Equity Incentive Plan
Equity Incentive Plan
 Number of
 Securities
 Exercise or
 Grant Date
   
 Awards
 Awards
 Shares of  
 Underlying
 Base Price of
 Fair Value of
 
Grant
Threshold
Target
Maximum
Threshold
Target
Maximum
 Stock or Units
 Options
 Option Awards
 Stock and  
Name
Date
($)
($)
($)
(#)
(#)
(#)
 (#)  (1)
 (#) (2)
 ($/Sh)
 Option Awards
                       
Ronald P. Erickson
5/10/2010
$ —
$ —
$ —
2,000,000
           —
$0.020
$40,000
 
5/10/2010
   —
   —
   —
          —
3,000,000
$0.018
$52,664
                       
Mark Scott
5/10/2010
   —
   —
   —
1,000,000
           —
$0.020
$20,000

(1)         The 2010 amount for Mr. Erickson reflects 2,000,000 shares of restricted common stock issued by the Company on May 10, 2010. The restricted common stock was issued at the closing bid price of $.02 per share on May 7, 2010. The 2010 amount for Mr. Scott reflects 1,000,000 shares of restricted common stock issued by the Company on May 10, 2010. The restricted common stock was issued at the closing bid price of $.02 per share on May 7, 2010.

(2)         The amount shown in this column reflects the number of options granted pursuant to the 2005 Stock Plan and vest quarterly over two years.

Outstanding Equity Awards as of Fiscal Year Then Ended September 30, 2010

                   
 
Option Awards  (1)
Stock Awards
 
Number of
Number of
Number of
       
Number of
Market or
 
Securities
Securities
Securities
   
Number of
Market Value
Unearned Shares,
Payout Value of
 
Underlying
Underlying
Underlying
   
Shares or Units
of Shares or
Units or Other
Unearned Shares,
 
Unexercised
Unexercised
Unexercised
 Option
 
of Stock
Units of
Rights That
Units, or Other
 
Options
Options
Unearned
 Exercise  
Option
That Have Not
Stock That
Have Not
Rights That Have
 
Exercisable
Unexerciseable
Options
 Price
Expiration
Vested
Have Not Vested
Vested
Not Vested
Name
(#)
(#)
(#)
 ($)
Date
(#)
($)
(#)
($)
                   
Ronald P. Erickson
  375,000
2,625,000
$0.15
5/9/2020
$ —
$ —
                   
Bradley E. Sparks
1,000,000
          —
$0.75
11/9/2011
$ —
$ —

(1)         Mr. Erickson’s stock option grant vest quarterly over two years. Mr. Spark’s stock option grant vest 25% in the first month and 25% annually. Mr. Erickson’ stock option grant has a 10-year term and Mr. Spark’s stock option grant has a 5-yeat term, before they are no longer exercisable.
 
 
 
 
24

 

 
Option Exercises and Stock Vested
 
         
 
Option Awards (1)
Stock Awards (2)
 
Number of Shares
Value Realized
Number of Shares
Value Realized
Name
Acquired on Exercise
on Exercise
Acquired on Vesting
on Vesting
 
(#)
 ($)
(#)
 ($)
         
Ronald P. Erickson
$ —
2,000,000
$40,000
         
Mark Scott
$ —
1,000,000
$20,000
         
James Gingo
$ —
          —
$       —
         
Bradley E. Sparks
$ —
          —
$       —

(1)         The Company’s named executive officers did not exercise any stock options during the year ended March 31, 2010, 2009 and 2008.

(2)         The 2010 amount for Mr. Erickson reflects 2,000,000 shares of restricted common stock issued by the Company on May 10, 2010. The restricted common stock was issued at the closing bid price of $.02 per share on May 7, 2010. The 2010 amount for Mr. Scott reflects 1,000,000 shares of restricted common stock issued by the Company on May 10, 2010. The restricted common stock was issued at the closing bid price of $.02 per share on May 7, 2010.

Employment Agreements

On November 17, 2009, Mr. Erickson assumed the positions of CEO, President and interim CFO, Secretary and Treasurer as a result of the resignation of Mr. Bradley Sparks from those positions.  Mr. Sparks continues to serve as a Director of the Company.  On May 10, 2010, Mr. Erickson resigned from the positions of CFO, Secretary and Treasurer and Mark Scott was appointed to those positions.  

The Company closed the acquisition of TransTech on June 8, 2010. James Gingo and Paul Bonderson, a TransTech investor, joined the Board of Directors on June 8, 2010.

Agreement with Mark Scott

On May 10, 2010, the Board of Directors approved the appointment of Mr. Scott as Chief Financial Officer based on the (i) cash compensation of $8,000 per month; (ii) bonus cash compensation; shall be at the discretion of the senior executive and the board of directors; (iii) benefits after the closing of funding at discretion of Mr. Scott and equivalent to other employees in the company; and (iv) 1,000,000 shares of restricted common stock to be granted upon signing at the closing bid price of $.02 per share on May 7, 2010.

Agreement with James Gingo

On June 8, 2010, we entered into an Employment Agreement (“Gingo Agreement”) with Mr. Gingo to serve as President of TransTech, which became a wholly owned subsidiary of the Company on that date. The Gingo Agreement has a three year term beginning on June 8, 2010 at the annual base salary of $200,000 per year. The Gingo Agreement provides for participation in the Company’s benefit programs available to other employees (including group insurance arrangements). Also under the Gingo Agreement, Mr. Gingo is eligible for discretionary performance bonuses based upon performance criteria to be determined by the Company’s Compensation Committee based on criteria under development up to 50% of his annual salary. If Mr. Gingo’s employment is terminated without Cause (as defined in the Gingo Agreement), Mr. Gingo will be entitled to a payment equal to one year’s annual base salary paid over the next year.  
 
The Agreement with Mark Scott does not contain any definitions. For purposes of the Gingo Agreement described above, the following definitions apply:

As used herein, “Cause” is defined as any of the following events which occur during the term of this agreement: (i) your repeated failure, in the reasonable, good faith judgment of the Board, to substantially perform your reasonable assigned duties or responsibilities as a Service Provider (defined below) as directed or assigned by the Board (other than a failure resulting from your Disability) continuing for a period of thirty (30) days or more following written notice thereof from the Board to you describing in reasonable detail those duties and/or responsibilities that the Board believes you have failed to perform; (ii) your engaging in knowing and intentional illegal conduct that was or is reasonably likely to be materially injurious to TransTech or the Company or its affiliates; (iii) your violation of a federal or state law or regulation, which was known or should have been known to you, applicable to TransTech or the Company’s business which violation was or is likely to be materially injurious to TransTech or the Company; (iv) your breach of a material term of this offer letter or any confidentiality agreement or invention assignment agreement between you and TransTech or the Company following written notice thereof from the Board to you and your failure to cure such breach within twenty (20) days of receipt of such notice; (v) your being convicted of, or entering a plea of nolo contendere to, a felony; or (vi) your committing any material act of dishonesty or fraud against, or the misappropriation of material property belonging to TransTech, the Company or its affiliates.
 
 
 
25

 

 
As used herein, “Change of Control” is defined as any one of the following occurrences: (a) Company is party to a merger or consolidation with or into another entity (or group of entities) (except a merger or consolidation in which the holders of capital stock of the Company immediately prior to such merger or consolidation continue to hold (solely in respect of their interests in the Company’s capital stock immediately prior to such merger or consolidation) at least 50% of the voting power of the capital stock of the Company or the surviving or acquiring entity); (b) the closing of the transfer (whether by merger, consolidation or otherwise), in one transaction or a series of related transactions, to a corporation, person or group of affiliated persons (other than an underwriter of the Company’s securities), of the Company’s securities if, after such closing, such person or group of affiliated persons would hold 50% or more of the outstanding voting stock of the Company, or (c) a sale, lease, assignment, transfer or disposal of all or substantially all of the assets of the Company (other than a pledge of such assets or grant of a security interest therein to a commercial lender in connection with a commercial lending or similar transaction); provided that the following shall not be considered a Change of Control: an equity financing of the Company in which the Company issues shares of its Common Stock or Preferred Stock.

As used herein, “Constructive Termination” is defined as any of the following, without your express written consent:  (i) a change in your title or position or a material reduction of your duties or responsibilities relative to your duties or responsibilities in effect immediately prior to such reduction, or your removal from such title, position, duties and responsibilities, unless you are provided with comparable title, duties, position and responsibilities; provided, however, that a reduction in duties or responsibilities solely by virtue of the Company being acquired and made part of a larger entity (as, for example, when the President of the Company remains as such following a change of control of the Company but is not made the President of the acquiring corporation) shall not constitute “Constructive Termination”; (ii) a reduction by the Company of your fixed cash compensation as in effect immediately prior to such reduction (unless such reduction constitutes a Board-approved, across-the-board salary reduction applicable to all similarly-situated employees at the Company); (iii) a reduction by the Company in the kind or level of employee benefits to which you are entitled immediately prior to such reduction with the result that your overall benefits package is significantly reduced (unless such reduction constitutes a Board-approved, across-the-board benefits reduction applicable to all similarly-situated employees at the Company); (iv) your relocation to a facility or a location more than 100 miles from Aurora, Oregon; or (v) the failure of the Company to obtain the assumption of this offer letter by any successor.

Potential Payments upon Termination or Change in Control
 
Our Employment Agreements with the named executive officers have provisions providing for severance payments as discussed below.

Mark Scott Termination Payments

Mark Scott does not receive any termination or change in control payments.

James Gingo Termination Payments

The following table shows the potential payments upon termination for James Gingo:

                               
         
Early
   
Not For Good
   
Change in
       
Executive
 
For Cause
   
or Normal
   
Cause
   
Control
   
Disability
 
Payments Upon
 
Termination
   
Retirement
   
Termination
   
Termination
   
or Death
 
Separation
 
on 9/30/10
   
on 9/30/10
   
on 9/30/10
   
on 9/30/10
   
on 9/30/10
 
Compensation:
                             
Base salary (1)
  $     $     $ 200,000     $ 400,000     $  
Performance-based incentive compensation
  $     $     $     $     $  
Stock options
  $     $     $     $     $  
                                         
Benefits and Perquisites:
                                       
Health and welfare benefits (2)
  $     $     $ 2,370     $ 9,480     $  
Accrued vacation pay (3)
  $ 3,846     $ 3,846     $ 3,846     $ 3,846     $ 3,846  
                                         
Total
  $ 3,846     $ 3,846     $ 206,216     $ 413,326     $ 3,846  


 
 
26

 
 

(1)         Reflects twelve months severance to be paid upon termination without cause and twenty four months upon termination in a change of control, less any months worked.

(2)         Reflects six and twenty four month’s group insurance, respectively, without cause or upon termination in a change of control.

(3)        Reflects the value of vacation pay accrued as of September 30, 2010.

We use stock options grants to incentive compensation to attract and retain qualified candidates to serve on the Board. In setting director compensation, the Company considers the significant amount of time that Directors expend in fulfilling their duties to the Company as well as the skill-level required by the Company of members of the Board. During year then ended September 30, 2010, Ronald Erickson and James Gingo did not receive any compensation for his service as a director.  The compensation disclosed in the Summary Compensation Table on page 23 represents the total compensation.

Director Summary Compensation Table

The table below summarizes the compensation paid by the Company to non-employee directors during the year then ended September 30, 2010.

                   
   
Stock
   
Option
       
Name
 
Awards (1)
   
Awards (1)
   
Total
 
Bradley Sparks
  $     $ 85,467     $ 85,467  
Marco Hegyi
    5,250             5,250  
Masahiro Kawahata
    5,250             5,250  
Jon Pepper
    5,250             5,250  
Yoshitami Arai
    5,250             5,250  
Paul R. Bonderson, Jr. (2)
                 
                         
Total
  $ 21,000     $ 85,467     $ 106,467  

(1)         Reflects the dollar amount recognized for financial statement reporting purposes for the year then ended September 30, 2010 in accordance with FASB ASC Topic 718. The assumptions used in the valuation of options is included in the Footnotes of the Form 10-K as filed with the SEC on December 30, 2010.

(2)         Mr. Bonderson joined the Board on June 8, 2010 with the closing of the TransTech acquisition. Mr. Bonderson received 600,000 shares at $.02 per share related to the acquisition.

Compensation Paid to Board Members

Our independent non-employee directors are not compensated in cash.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
The following table sets forth certain information regarding the ownership of our common stock as of August 17 , 2011 by: 
 
 
each director and nominee for director;
     
 
each person known by us to own beneficially 5% or more of our common stock;
     
 
each officer named in the summary compensation table elsewhere in this report; and
     
 
all directors and executive officers as a group.

The amounts and percentages of common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has the right to acquire beneficial ownership within 60 days. Under these rules more than one person may be deemed a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest.

 
 
27

 
 

Unless otherwise indicated below, each beneficial owner named in the table has sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. The address of each beneficial owner of more than 5% of common stock is as follows:
 
               
Shares Outstanding with
 
               
Gemini Master Fund, Ascendiant
 
   
Shares Outstanding
   
and Vested Stock Options
 
   
Amount
   
Percentage
   
Amount
   
Percentage
 
Directors and Officers-
                       
Ronald P. Erickson
    5,206,473       10.9 %     7,081,473       12.5 %
Mark Scott
    1,000,000       2.1 %     1,000,000       1.8 %
Bradley E. Sparks
    50,000       *       1,050,000       1.9 %
Marco Hegyi
    375,000       *       625,000       *  
Dr. Masahiro Kawahata
    903,784       1.9 %     903,784       1.6 %
Jon Pepper
    375,000       *       375,000       *  
Yoshitami Arai
    195,000       *       195,000       *  
James Gingo
    3,000,000       6.3 %     3,000,000       5.3 %
Paul R. Bonderson, Jr.
    625,000       1.3 %     625,000       1.1 %
Total Directors and Officers (9 in total)
    11,730,257       24.6 %     14,855,257       26.3 %
 
               
Shares Outstanding with
 
               
Gemini Master Fund, Ascendiant
 
   
Shares Outstanding
   
and Vested Stock Options
 
   
Number
   
Percentage
   
Amount
   
Percentage
 
Greater Than 5% Ownership
                       
                         
Ronald P. Erickson
    5,206,473       11.1 %     7,081,473       12.7 %
500 Union Street , Suite 406
                               
Seattle, WA 98101
                               
                                 
James Gingo
    3,000,000       6.4 %     3,000,000       5.4 %
TransTech Systems, Inc.
                               
12142 NE Sky Lane Suite 130
                               
Aurora, OR 97002-8730
                               
                                 
Gemini Master Fund Ltd
    -       0.0 %     4,371,429       7.8 %
C/O Gemini Strategies LLC
                               
619 South Vulcan, Suite 203
                               
Encinitas, CA 92024
                               
 
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Related Party Notes Payable

We acquired our 100% interest in TransTech by issuing a Promissory Note (“Note”) to James Gingo, the President of TransTech, in the amount of $2,300,000, plus interest at the rate of three and one-half percent (3.5%) per annum from the date of the Note. The Note is secured by a security interest in the stock and assets of TransTech, and is payable over a period of three (3) years as follows:
 
(i)        The sum of $650,000, the amount of any accrued interest due on the Bonderson debt of $600,000 owed by James Gingo to the Bonderson Family Living Trust (“Bonderson Debt”) and interest on the unpaid balance, shall be paid to Seller on the earlier of: (A) the one (1) year anniversary of the closing date; or (B) on the closing of $2,500,000 or more in aggregate financing (whether debt, equity or some combination thereof) after the closing date.  On June 8, 2011, we paid $650,000 and accrued interest of $80,500 to Mr. Gingo.
 
 
 
28

 
 
 
(ii)       The sum of $650,000, the amount of any accrued interest due on the Bonderson debt owed by James Gingo and interest on the unpaid balance shall be paid to Seller on the earlier of: (A) the two (2) year anniversary of the closing date; or (B) on the closing of $5,000,000 or more in aggregate financing (whether debt, equity or some combination thereof) after the closing date; and
 
(iii)      The remaining balance of the Note and interest thereon shall be paid to Seller on the earlier of: (A) the three year anniversary of the closing date; or (B) on the closing of $7,500,000 or more in aggregate financing (whether debt, equity or some combination thereof) after the closing date.
 
On February 27, 2007, the Company entered into a demand note with former CEO and President, Bradley E. Sparks totaling $50,000 plus loan fees of $750.  As of June 30, 2011, the outstanding note payable totaled $50,750 consisting of the note payable to Mr. Sparks.  Interest expense accrues on the note at a rate of 18% per annum.  Accrued interest of $39,844 as of June 30, 2011 on the note payable is recorded in the balance sheet in accrued expenses and other liabilities.
 
Any delays in repayment of the principal and accrued interest on the note payable upon demand result in a penalty interest rate of 30% per annum.  The interest due to Mr. Sparks became in arrears on February 16, 2008 and has not been paid as of the date of this filing.  Mr. Sparks has not demanded repayment of the note as of the date of this filing.

On September 30, 2009, the Company entered into a second demand note with former CEO and President, Bradley E. Sparks totaling $22,478.  As of June 30, 2011, the outstanding note payable totaled $22,478 consisting of the note payable to Mr. Sparks.  Interest expense accrues on the note at a rate of 8% per annum.  Accrued interest of $3,143 as of June 30, 2011 on the notes payable is recorded in the balance sheet in accrued expenses and other liabilities.

On April 30, 2009, accounts payable owed to Lynn Felsinger, a consultant, totaling $82,000 was converted into a demand note. Ms. Felsinger has not demanded repayment of the note as of August 17 , 2011.

Mr. Ronald Erickson, our Chief Executive Officer, converted outstanding debt with accrued interest in the amount of $152,971 into 1,019,806 shares of common stock of the Company valued at $0.15 per share on March 27, 2009. In addition, an affiliate of Mr. Erickson’s, Juliz I Limited Partnership, loaned the Company operating funds during fiscal 2009.  The balance outstanding at June 30, 2011 is $34,630 plus interest of $6,930.  Additionally, Mr. Erickson incurred expenses on behalf of the Company for a total of $24,322 during the 2009 fiscal year.  This balance was converted into a loan as of September 30, 2009 which bears interest at 8%.  Accrued interest was $3,401 as of June 30, 2011.
 
Other Related Party Transactions

Mr. Sparks is owed $721,333 of accrued salary plus $57,998 which has been accrued to pay applicable payroll taxes, FUTA, etc.  Additionally, interest of $42,987 is owed Mr. Sparks for the note payable described in Note 11 to these Notes to Financial Statements.  Mr. Sparks is also owed $6,315 for cash amounts advanced by him to Visualant to fund operating expenses since his employment and $5,136 for medical expenses.
 
DESCRIPTION OF SECURITIES

Common Stock

Our common stock is $.001 par value, 200,000,000 shares authorized and as of August 17 , 2011, we had 47,613,034 issued and outstanding, held by approximately 126 shareholders of record. The number of stockholders, including beneficial owners holding shares through nominee names is approximately 1,400. Each share of Common Stock entitles its holder to one vote on each matter submitted to the shareholders. As of August 17 , 2011, we had 4,377,050 shares of common stock reserved for the issuance of warrants and an undetermined number of shares of common stock related to convertible debt.
 
American Stock Transfer and Trust Company is the transfer agent and registrar for our Common Stock.

Preferred Stock

On September 13, 2002, 50,000,000 shares of preferred stock with a par value of $0.001 were authorized by the shareholders.  There are no preferred shares issued and the terms have not been determined.
 
 
 
 
29

 

 
Stock Incentive Plan
 
We have reserved 7,000,000 shares of Common Stock for issuance under the 2011 Stock Incentive Plan.

Market Price of and Dividends on Common Equity and Related Stockholder Matters

Our common stock trades on OTCBB Exchange under the symbol "VSUL". The following table sets forth the range of the high and low sale prices of the common stock for the periods indicated:
 
Quarter Ended
 
High
   
Low
 
December 31, 2010
  $ 0.74     $ 0.23  
March 31, 2011
  $ 0.70     $ 0.33  
June 30, 2011
  $ 0.57     $ 0.21  
                 
December 31, 2009
  $ 0.17     $ 0.04  
March 31, 2010
  $ 0.16     $ 0.05  
June 30, 2010
  $ 0.40     $ 0.05  
September 30, 2010
  $ 0.40     $ 0.14  
                 
December 31, 2008
  $ 0.15     $ 0.01  
March 31, 2009
  $ 0.50     $ 0.03  
June 30, 2009
  $ 0.20     $ 0.05  
September 30, 2009
  $ 0.12     $ 0.05  
 
As of August 1, 2011, the closing price of the Company’s common stock was $.15 per share. As of August 17, 2011, there were 47,613,034 shares of common stock outstanding held by approximately 126 stockholders of record. The number of stockholders, including the beneficial owners' shares through nominee names, is approximately 1,400.

Holders

As of August 17 , 2011, we had approximately 126 stockholders of record of our common stock based upon the stockholder list provided by our transfer agent. The number of stockholders, including the beneficial owners’ shares through nominee names, is approximately 1,400.
 
Transfer Agent

Our transfer agent is American Stock Transfer & Trust Company located at 6201 15th Avenue, Brooklyn, New York 11219, and their telephone number is (800) 937-5449.

Dividends

We have never paid any cash dividends and intend, for the foreseeable future, to retain any future earnings for the development of our business. Our future dividend policy will be determined by the board of directors on the basis of various factors, including our results of operations, financial condition, capital requirements and investment opportunities.

Other Information
 
The description of our capital stock does not purport to be complete and is qualified in all respects by reference to our (i) Amended and Restated Articles of Incorporation, filed as an exhibit to the Company’s annual report on Form 10-KSB filed  on February 9, 2006; (ii) Amended and Restated Bylaws; (iii) Nevada General Corporation Law; (iv) Warrant to Purchase Common Stock dated December 4, 2009 by and between Visualant, Inc. and Coach Capital LLC; (v) Warrant dated June 11, 2010 by and between Visualant, Inc. and the Sterling Group; (vii) Securities Purchase Agreement dated December 23, 2010 by and between Visualant, Inc. and Seaside 88 Advisors LLC; (viii) Securities Purchase Agreement, Registration Rights Agreements, Debentures and Warrants dated May 19, 2011 by and between Visualant, Inc. and Gemini Master Fund Ltd and Ascendiant Capital Partners, LLC; (ix) Warrant Agreement dated May 19, 2011 by and between Visualant, Inc. and Ascendiant Capital Markets LLC; and (x) Securities Purchase Agreement dated June 17, 2011 by and between Visualant, Inc. and Ascendiant Capital Partners, LLC.

 
 
 
30

 
 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

There are not and have not been any disagreements between us and our accountants on any matter of accounting principles, practices, or financial statement disclosure during our two most recent fiscal years and subsequent interim period.

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES

Under Nevada law, a corporation may include in its articles of incorporation (“Articles”) a provision that eliminates or limits the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, but no such provision may eliminate or limit the liability of a director (a) for any breach of his fiduciary duty as a director, (b) for acts or omissions not in good faith or that involve intentional misconduct, fraud or a knowing violation of law, (c) for conduct violating the Nevada General Corporation Law, or (d) for any transaction from which the director will personally receive a benefit in money, property or services to which the director is not legally entitled.

Section 78.7502 of the Nevada Revised Statues (“NRS”) provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit or proceeding if the person acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful.

NRS Section 78.4502 also provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys' fees actually and reasonably incurred by the person in connection with the defense or settlement of the action or suit if the person acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation; provided, however, that indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

Any indemnification pursuant to the above provisions may be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances.  The determination must be made:  (a) by the stockholders; (b) by the Board of Directors by majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding; (c) if a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding so orders, by independent legal counsel in a written opinion; or (d) if a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion.

Under Articles IX and X of the Registrant’s Amended and Restated Articles of Incorporation, the personal liability of all its directors and officers is eliminated to the fullest extent allowed by Nevada law.  In addition, a director shall not be personally liable to the corporation or its stockholders for monetary damages for conduct as a director, except for liability (a) for acts or omissions that involve intentional misconduct or a knowing violation of law; (b) for conducting violating the Nevada General Corporation Law; or (c) for any transaction from which the director will personally receive a benefit in money, property or services to which the director is not legally entitled.

Article X also provides that the corporation also may purchase and maintain insurance or make other financial arrangements on behalf of any director, officer, agent or employee of the corporation, for any liability asserted against him and for expenses incurred by him in his capacity as a director, officer, employee or agent, arising out of his status as such, whether or not the corporation has the authority to indemnify him against such liability and expenses.

The Registrant currently has a directors’ and officers’ liability insurance policy in place pursuant to which its directors and officers are insured against certain liabilities, including certain liabilities under the Securities Act of 1933, as amended (“Securities Act”) and the Securities and Exchange Act of 1934, as amended (“Exchange Act”).

 
 
31

 
 


Insofar as indemnification for liabilities arising out of the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to the provisions described above, the Company has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

ADDITIONAL INFORMATION

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Reports filed with the SEC pursuant to the Exchange Act, including proxy statements, annual and quarterly reports, and other reports filed by us can be inspected and copied at the public reference facilities maintained by the SEC at the Headquarters Office, 100 F. Street N.E., Room 1580, Washington, D.C. 20549. The reader may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The reader can request copies of these documents upon payment of a duplicating fee by writing to the SEC. Our filings are also available on the SEC’s internet site at http://www.sec.gov.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
32

 
 

 
INDEX TO FINANCIAL STATEMENTS
     
Title of Document  
Page Number
     
Consolidated Balance Sheets as of June 30, 2011 (unaudited) and September 30, 2010
  F-2
     
Consolidated Statements of Operations For the three and nine months ended June 30, 2011 and 2010 (unaudited)
  F-3
     
Consolidated Statements of Cash Flows For the nine months ended June 30, 2011 and 2010 (unaudited)
  F-4
     
Notes to the Financial Statements
  F-5 to F-19
     
     
Report of Madsen & Associates, CPA’s Inc.
  F-20
     
Consolidated Balance Sheets as of September 30, 2010 and 2009
  F-21
     
Consolidated Statements of Operations for the years ended September 30, 2010, 2009 and 2008
  F-22
     
Consolidated Statements of Changes in Stockholders' Deficit for the years ended September 30, 2010, 2009 and 2008
  F-23
     
Consolidated Statements of Cash Flows for the years ended September 30, 2010, 2009 and 2008
  F-24
     
Notes to the Financial Statements
  F-25 to F-37
     

         
 
 
 

 
 
 
 
 
 
F-1

 
 
 
 
VISUALANT, INCORPORATED AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
             
   
June 30, 2011
   
September 30, 2010
 
ASSETS
 
(unaudited)
   
(audited)
 
             
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 249,669     $ 83,937  
Accounts receivable, net of allowance of $16,750 and $16,750, respectively
    911,355       883,567  
Prepaid expenses
    282,796       54,386  
Inventories
    519,712       622,770  
Refundable tax assets
    7,414       8,581  
Total current assets
    1,970,946       1,653,241  
                 
EQUIPMENT, NET
    537,471       588,060  
                 
OTHER ASSETS
               
Intangible assets, net
    1,214,772       918,069  
Goodwill
    983,645       983,645  
Investment in Novabeam, Inc.
    50       50  
Other assets
    1,091       1,091  
                 
TOTAL ASSETS
  $ 4,707,975     $ 4,144,156  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
CURRENT LIABILITIES:
               
Accounts payable - trade
  $ 1,134,695     $ 1,432,074  
Accounts payable - related parties
    10,603       149,932  
Accrued expenses
    117,494       169,364  
Accrued expenses - related parties
    775,886       766,284  
Convertible notes payable, net of debt discount of $11,153 at 9/30/10
    1,250,000       288,847  
Note payable - current portion of long term debt
    1,654,260       1,513,495  
Total current liabilities
    4,942,938       4,319,996  
                 
LONG TERM  LIABILITIES:
               
Long term debt
    1,017,350       1,675,978  
                 
STOCKHOLDERS' DEFICIT:
               
Preferred 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, 46,762,832
               
and 38,229,374 shares issued and outstanding at 3/31/11 and 9/30/10, respectively
    46,763       38,229  
Additional paid in capital
    9,165,399       6,835,647  
Accumulated deficit
    (10,503,547 )     (8,774,277 )
Total stockholders' deficit
    (1,291,385 )     (1,900,401 )
Noncontrolling interest
    39,072       48,583  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
  $ 4,707,975     $ 4,144,156  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
 
F-2

 
 
 


 
VISUALANT, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

                         
   
Three Months Ended,
   
Nine Months Ended,
 
   
June 30, 2011
   
June 30, 2010
   
June 30, 2011
   
June 30, 2010
 
   
(unaudited)
   
(unaudited)
   
(unaudited)
   
(unaudited)
 
REVENUE
  $ 2,102,672     $ 445,165     $ 7,036,826     $ 445,165  
COST OF SALES
    1,678,816       354,239       5,854,872       354,239  
GROSS PROFIT
    423,856       90,926       1,181,953       90,926  
RESEARCH AND DEVELOPMENT EXPENSES
    82,509       11,000       94,509       58,500  
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    1,248,118       497,378       2,725,948       828,947  
OPERATING LOSS
    (906,771 )     (417,452 )     (1,638,504 )     (796,521 )
                                 
OTHER INCOME (EXPENSE):
                               
Interest expense
    (47,768 )     (25,220 )     (149,494 )     (62,905 )
Other income
    5,539       3,212       60,791       3,212  
Total other expense
    (42,229 )     (22,008 )     (88,703 )     (59,693 )
                                 
LOSS BEFORE INCOME TAXES
    (949,000 )     (439,460 )     (1,727,207 )     (856,214 )
                                 
Income taxes - current benefit
    (1,242 )     (3,940 )     (7,414 )     (3,940 )
                                 
NET LOSS
    (947,758 )     (435,520 )     (1,719,794 )     (852,274 )
                                 
NONCONTROLLING INTEREST
    1,739       (1,034 )     9,476       (1,034 )
                                 
NET LOSS ATTRIBUTABLE TO VISUALANT, INC. AND SUBSIDIARIES COMMON SHAREHOLDERS
  $ (949,497 )   $ (436,554 )   $ (1,729,270 )   $ (853,308 )
                                 
Basic and diluted loss per common share attributable to Visualant, Inc. and subsidiaries common shareholders-
                 
Basic and diluted loss per share
  $ (0.02 )   $ (0.01 )   $ (0.04 )   $ (0.03 )
                                 
Weighted average shares of common stock outstanding- basic and diluted
    44,987,846       33,087,707       40,959,996       30,728,036  

The accompanying notes are an integral part of these consolidated financial statements.






 
 
F-3

 
 
 


 
VISUALANT, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
             
   
Nine Months Ended,
 
   
June 30, 2011
   
June 30, 2010
 
   
(unaudited)
   
(unaudited)
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (1,719,794 )   $ (852,274 )
Adjustments to reconcile net loss to net cash
               
(used in) operating activities
               
Depreciation and amortization
    235,989       22,794  
Issuance of capital stock and warrants for services and expenses
    590,305       181,592  
Stock based compensation
    51,607       107,974  
Amortization of debt discount
    11,153       33,713  
Loss on sale of assets
    (2,672 )     -  
Changes in operating assets and liabilities:
               
Accounts receivable
    (27,787 )     50,291  
Prepaid expenses
    (251,424 )     (6,555 )
Inventory
    103,058       (19,746 )
Other assets
    (41,843 )     (25,741 )
Noncontrolling interest
    (18,987 )     -  
Accounts payable - trade and accrued expenses
    (153,265 )     100,636  
CASH PROVIDED BY USED IN OPERATING ACTIVITIES
    (1,223,660 )     (407,316 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Capital expenditures
    (114,715 )     (17,173 )
Proceeds from sale of equipment
    8,299       -  
NET CASH USED IN INVESTING ACTIVITIES:
    (106,416 )     (17,173 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Payments on line of credit
    (20,526 )     216,058  
Distribution
    -       (20,000 )
Repayment of debt
    (650,000 )     7,727  
Proceeds from the issuance of common stock
    886,149       -  
Repayments of capital leases
    (19,815 )     -  
Proceeds from the issuance of convertible debt
    1,300,000       250,000  
NET CASH PROVIDED BY FINANCING ACTIVITIES
    1,495,808       453,785  
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS
    165,732       29,296  
                 
CASH AND CASH EQUIVALENTS, beginning of period
    83,937       81,541  
                 
CASH AND CASH EQUIVALENTS, end of period
  $ 249,669     $ 110,837  
                 
Supplemental disclosures of cash flow information:
               
Interest paid
  $ 150,395     $ 4,943  
Taxes paid
  $ -     $ -  
                 
Non-cash investing and financing activities:
               
Issuance of warrants in connection with convertible debt
  $ -     $ 61,336  
Issuance of common stock for acquisition
  $ 200,000       76,000  
Debtenture converted to common stock
  $ 350,000     $ -  
Issuance of common stock for conversion of liabilities
  $ 260,225     $ 144,000  
Issuance of note payable for acquisition
  $ 100,000     $ 2,300,000  
 
The accompanying notes are an integral part of these consolidated financial statements.











 
F-4

 
VISUALANT, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.
ORGANIZATION
 
Visualant, Inc. (the “Company”) was incorporated under the laws of the State of Nevada on October 8, 1998 with authorized common stock of 200,000,000 shares at $0.001 par value. On September 13, 2002, 50,000,000 shares of preferred stock with a par value of $0.001 were authorized by the shareholders.  There are no preferred shares issued and the terms have not been determined.
 
The Company closed the acquisition of TransTech Systems, Inc. (“TransTech”) of Aurora, OR on June 8, 2010 and recorded the results from June 8, 2010 to June 30, 2011. As of June 8, 2010, the Company is no longer in the development stage.
 
This acquisition is expected to accelerate market entry and penetration through the acquisition of well-operated and positioned distributors of security and authentication systems like TransTech, thus creating a natural distribution channel for products featuring our proprietary Spectrum Pattern Matching (“SPM”) technology.
 
The accompanying unaudited consolidated financial statements of the Company and our subsidiaries have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The financial statements for the periods ended June 30, 2011 and 2010 are unaudited and include all adjustments necessary to a fair statement of the results of operations for the periods then ended. All such adjustments are of a normal, recurring nature. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for a full fiscal year. For further information, refer to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2010 as filed with the Securities and Exchange Commission (the “SEC”) on December 30, 2010.
 
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. The Company has incurred net losses of $1,148,920 and $950,609 for the years ended September 30, 2010 and 2009, respectively. Our current liabilities exceeded our current assets by approximately $3.0 million as of June 30, 2011.  Our net cash used in operating activities was $440,968 for the year ended September 30, 2010.

As of June 30, 2011, the Company had $249,669 in cash. The Company needs to obtain additional financing to implement the business plan, service our debt repayments and acquire new businesses..  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.
 
The Company anticipates that it will record losses from operations for the foreseeable future. As of June 30, 2011, our accumulated deficit was $10.5 million.  The Company has 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