UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K


(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the fiscal year ended December 31, 2008

OR

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the transition period from ______ to ______

Commission file number 333-133936

VISUAL MANAGEMENT SYSTEMS, INC.

(Name of small business issuer in its charter)


Nevada		68-0634458

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


1000 Industrial Way North, Suite C, Toms River, New Jersey		08755

(Address of principal executive offices)		(Zip Code)

(732) 281-1355

Issuer’s telephone number


Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

	Common Stock, par value $.001

	(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.

o Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Act.

Yes x No o

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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		Accelerated filer

Non-accelerated filer	((Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.)

Yes o No x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of April 13, 2009 was approximately $382,171.

The number of shares outstanding of the registrant’s Common Stock as of April 14, 2009 was 11,098,277

VISUAL MANAGEMENT SYSTEMS, INC.

INDEX TO FORM 10-K


PART I

Item 1.	Business	1

Item 1A	Risk Factors	9

Item 2.	Properties	16

Item 3.	Legal Proceedings	17

Item 4.	Submission of Matters to a Vote of Security Holders	17

PART II

Item 5.	Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17

Item 6.	Selected Financial Data	18

Item 7.	Management’s Discussion and Analysis of Financial Conditions and Results of Operations	18

Item 8.	Financial Statements and Supplementary Data	24

Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	24

Item 9A.	Controls and Procedures	24

Item 10.	Directors, Executive Officers and Corporate Governance	27

Item 11.	Executive Compensation	29

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	38

Item 13.	Certain Relationships, Related Transactions and Director Independence	39

Item 14.	Principal Accounting Fees and Services	40

Item 15.	Exhibits, Financial Statement Schedules	40

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information included in this annual report on Form 10-K and other filings of the Registrant under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as information communicated orally or in writing between the dates of such filings, contains or may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act. Such statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from expected results. Among these risks, trends and uncertainties are economic conditions generally and in the industries in which the Registrant may participate; competition within the Registrant’s chosen industries, including competition from much larger competitors; technological advances; available capital; the continued cooperation of our creditors; and failure by the Registrant to successfully develop or acquire products and form new business relationships.

In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable terminology. Although the Registrant believes that the expectations reflected in the forward-looking statements contained herein are reasonable, the Registrant cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither the Registrant, nor any other person assumes responsibility for the accuracy and completeness of such statements. The Registrant is under no duty to update any of the forward-looking statements contained herein after the date this annual report on Form 10-K is submitted to the Securities and Exchange Commission.

PART I


Item 1.	Business


(a)	Business Development

Visual Management Systems, Inc. was incorporated in the State of Nevada in March 2004. Our company was originally named Wildon Productions, Inc. On July 17, 2007, we acquired all of the outstanding capital stock of Visual Management Systems Holding, Inc., a New Jersey corporation, in connection with the merger of our wholly owned subsidiary with and into Visual Management Systems Holding, Inc. In connection with the merger, we changed our name to Visual Management Systems, Inc. and affected a 1-for-7 reverse stock split of our common stock in connection with our acquisition of Visual Management Systems Holding, Inc. described below. From incorporation until our acquisition of Visual Management Systems Holding, Inc., we were an exploration stage company primarily engaged in the acquisition and exploration of mineral properties. Upon the completion of the acquisition, we succeeded to the business of Visual Management Systems Holding, Inc. and relocated our principal executive offices to those of Visual Management Systems Holding, Inc. at 1000 Industrial Way North, Suite C, Toms River, New Jersey 08755. The telephone number at our principal executive offices is (732) 281-1355.

On April 3, 2008, we purchased substantially all the assets of Intelligent Digital Systems, LLC (“IDS”). IDS is the developer and manufacturer of the TechEye Digital Video (DVR) Recording Technology. See “Item 3. Legal Proceedings” and “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations.”


(b)	Overview of Business

We provide electronic security solutions to businesses, governmental entities and individuals through the design, manufacture, sale and installation of digital surveillance systems that enable clients to proactively manage their businesses, and secure their homes or campuses with easy video data retrieval and live viewing from anywhere in the world. Our management believes that there is a lucrative and underserved market for electronic security technology through the use of digital recording and video transmission to remote locations and corporate offices

Through on-site consultations, we provide security and loss prevention analysis, liability assessments and custom tailored CCTV camera layouts designed by a system design consultant to its prospective customers.

We design, manufacture, sell, install, upgrade and service the digital video recording devices (“DVRs”) and network video recording devices (“NVRs”) used in our surveillance systems. In addition, we sell our DVRs and NVRs to outside dealers. We currently manufacture and sell several lines of our “Virtual Manager” and “TrueHybrid” DVR and NVR products, import and resell DVRs and NVRs and camera products from other manufacturers and have additional product lines under development through our Research and Development staff and under alliance and joint venture agreements with third parties.

We currently conduct our operations through three subsidiary entities, Visual Management Systems, LLC, which provides our protective technology solutions and remote management surveillance systems, Intelligent Product Development Group, LLC, which designs, manufactures and sells our DVRs and NVRs, and VMS Financial Services, LLC, which has been formed to provide equipment leasing services to our customers, but which has thus far engaged in very limited operations.

Video Surveillance Systems

Our primary business is the design, sale and installation of CCTV surveillance systems. Through on-site consultations, we provide loss prevention analyses, liability assessments and custom-tailored CCTV camera layouts designed by professional system consultants to prospective customers. Our surveillance systems enable clients to manage their business through data retrieval and view their businesses live from anywhere in the world. The primary components that we use in our video surveillance systems include:


•	Digital Video Recorders: Our DVR product lines are comprised of custom configurations of surveillance hardware and software systems based on the capture and compression technology of Inet Secuvic, Inc., a Korean company, and our own proprietary TrueHybrid technology. These DVRs can manage between 4 and 64 analog cameras and offer individually addressable recording schedules and frame rates

•	Network Video Recorders: Our NVR product lines are based on our proprietary TrueHybrid technology, and are capable of accepting up to 128 different video sources of multiple types including IP, analog and USB cameras.

•	Surveillance Cameras: We use a variety of cameras in our video surveillance systems, and those selections are typically made on-site by the customer with the assistance of a Loss Prevention Consultant or a System Design Specialist that we provide who creates and sells a “shot-layout” to ensure that the customer is satisfied with each camera shot. Cameras can be either IP or analog, and some types frequently used in our systems include:

	o	Smoked or Mirrored Dome Cameras which present an image of “high-end” security and provide deterrence against common forms of small business fraud, such as shoplifting, vandalism, credit card and ID fraud and employee theft. These cameras are popular due to the wide variety of potential configurations and applications and their “stealth” properties.

	o	Bullet Cameras, which are small, discrete and reliable. Bullet cameras have few moving parts, thereby limiting preventive maintenance to occasional cleaning. They are environmentally sealed for indoor and outdoor service.

	o	Covert Specialty Cameras, which are cameras concealed within other apparatuses, such as radios, clocks, exit signs and smoke detectors. These


			cameras permit a business owner to monitor a location without the knowledge of those present at the location.

		o	Box Cameras are the most widely recognized CCTV cameras and are the best choice for many applications. They offer great flexibility in resolution, light requirements and local length. A 24-volt AC current typically powers box cameras, which gives them the ability to carry images over greater distances than other cameras. As a result, they are often used for perimeter protection in smaller, self-contained 12-volt cameras.

Our video surveillance systems also include monitors, power supplies, battery backup power, wire and connectors. We are a value-added reseller for several product lines, including Axis, Sony, Panasonic and Pelco amongst others.

Digital Video Recorders, Network Video Recorders

We manufacture our own lines of “Virtual Manager” and “TrueHybrid” DVRs and NVRs both of which are either based on our proprietary TrueHybrid software, or custom configurations of surveillance hardware and software systems based on the capture and compression technology of Inet Secuvic, Inc., a Korean company. We also offer TrueHybrid branded versions of our proprietary product. Each of our DVRs and NVRs is a Microsoft Windows® PC based product, and the product line ranges from four channel systems to enterprise grade, unlimited source systems that can be expanded into virtually unlimited network based, engineered systems.

Since their introduction in 1995, DVRs have been overtaking time-lapsed VCRs as the primary recording mechanism in commercial surveillance, and more recently NVRs and Internet Protocol (IP) based cameras have begun to replace analog systems and cameras due to the potential for superior image quality and the ability to transmit images via the Internet over long distances.

DVR and NVR systems have historically been available as software systems or hardware systems. Software based DVRs and NVRs are simply software programs which run on personal computers. They are cost effective and operate on readily available, easily serviced PC-platform computers; however, image quality often suffers and digital video recording places a significant strain on a computers resources. This strain causes premature failure of primary computer components and can cause other parts of the computer to function slowly or cease functioning. Software DVRs and NVRs are generally not suitable for business class security applications.

“Firmware” or “solid state” systems are also computer based but are essentially multiplexers with hard disk drives built in for recording. Generally, these hardware based DVRs are built for the sole purpose of providing video surveillance and are effective; however, hardware based systems generally have two significant short-comings: inflexibility and service. Generally, there is little or no room for modifying or expanding the system. As for serviceability, hardware based systems, like a stereo or television set, have no user serviceable parts. For repair, the equipment must be returned to the manufacturer. Inasmuch as a significant

amount of DVR manufacturing takes place in Asia, repairs frequently result in several weeks of “down-time” for users.

Given the relative strengths and weaknesses of software based and hardware based DVRs and NVRs, we believe that the best choice for consumers is a DVR or NVR which incorporates both types of technologies. We use hardware-based video capture cards in our “Virtual Manager” DVR and hybrid NVRs which process video from analog cameras, and a software based platform for the dedicated NVRs which utilize no analog video. The result is a dedicated security computer. The use of removable hard disk drives for storage flexibility and components that are readily available, inexpensive and easy to service provides a PC-based security system that can grow with a business.

We build our DVRs and NVRs to very specific standards. Each DVR or NVR is built from tested, proven components and is driven by Microsoft Windows® software and is customized to perform optimally based on a system designed by our staff. All of our custom-built DVRs and NVRs offer record-on-motion capabilities as well as continuous, alarm-triggered or combination settings. Data is easy to retrieve by date and time and can be reviewed at user-controlled speeds and with up to sixteen simultaneous feeds. Live video can be viewed via central monitoring software which supports up to 100 simultaneous feeds.

Standard features of our DVRs and NVRs include:


	• Live remote viewing

	• Motion and frames per camera are addressable per camera

	• Access to recorded data by date and hour

	• Alarm notification by e-mail, phone or IP-alert

	• All functions are username and password protected

	• Video motion sensor and built-in motion detector mode

	• Uninterrupted recording

Other features that we make available include:

	• High resolution digital color cameras per system design

	• Flat panel LCD monitors for on-site viewing

	• Unlimited Access RMS software licenses

	• Long-term service contracts

Remote Management Software used with DVRs and NVRs offers the ability to view a location live from anywhere, at any time via telephone lines or high-speed internet access. In addition to selling DVRs and NVRs as part of systems that we designed and installed, we sell our

DVRs and NVRs through unaffiliated dealers. During the fiscal year ended December 31, 2008, dealer sales represented approximately $230,000 of our revenues.

Sales and Marketing

We market and sell our video surveillance and other security systems through a dedicated sales force of approximately 10 inside and outside sales people. Our DVRs and NVRs are also sold through independent dealers. We are always looking for opportunities with new dealers, and plan to evaluate the market for our products throughout 2009 to determine whether we should make any expansion in our employee sales force.

We use various methods to market and sell our products and services, including direct sales efforts, personal consultations, sponsorships, attendance at exhibitions and trade shows, advertisements in industry journals, public relations and direct mail solicitation. Business is also obtained through competitive bid processes and referrals.

Our pricing strategies are based upon an estimate of labor hours multiplied by standard rates and the estimated cost of system components, including subcontractors, plus a profit margin.

Service

A strong service and maintenance capability is an important element in maintaining good customer relations and low attrition, and is an important revenue generating activity for us. We offer one and three year service contracts as well as paid extensions of existing service contracts and takeover programs for equipment formerly serviced by other companies which no longer provide service to a particular client. Service is typically provided by our staff or subcontracted through partner companies such as dealers of our DVR and NVR products or structured cabling companies.

Our service contracts represent a growing, recurring revenue stream for us.

Suppliers

We acquire the components for our video surveillance systems and DVRs and NVRs through various suppliers, including ADI and PurePower. We choose not to align our self with any one supplier so that we can recommend the best solutions for our customers. Substantially all of the components that we use are readily available from multiple sources.

Market

We believe that the multi-billion dollar market for video surveillance systems and other protective technologies is growing rapidly due to a number of factors, including:


	•	many existing security and surveillance systems are becoming technologically obsolete and inadequate;


	•	insurance providers and governing bodies began mandating surveillance in certain environments and situations;

	•	since the tragic events of September 11, 2001, security is among the highest concerns of Americans at home and work;

	•	widespread coverage of kidnappings, robberies and other crimes appear daily on television, in newspapers and in all types of news media;

	•	economic downturns often result in increased property crime, the threat of which is a major driving factor in customer interest in our products and services;

	•	technological advancements provide the opportunity to increase the scope and efficacy of many routine security tasks.

We believe that the market for video surveillance systems is highly fragmented among a small number of larger providers and a broad array of small companies. We believe that the mid-size business market is underserved and plan to exploit opportunities in this sector.

Competition

The security industry is highly competitive. We compete on a local and regional level with a small number of major firms and many smaller companies in the installed surveillance system space, and nationally in the direct to dealer space. We compete primarily on the quality of our service and the design and reliability of our products. Certain of our competitors have greater name recognition and financial resources than us. We may also face competition from potential new entrants into the security industry or increased competition from existing competitors that may attempt to develop the ability to offer the full range of services that we offer. We believe that competition is based primarily on the ability to deliver solutions that meet a client’s requirements and, to a lesser extent, on price. Our competitors in the installed system space include Vector Security, American Sentry Guard, GVI Security Solutions, Inc., ADT Security Services, Ltd. (a division of Tyco International) and Sonitrol, Inc. Our competitors in the direct to dealer space include Aventura, Bosch, Milestone and others. There can be no assurance that we will be able to compete successfully in the future against existing or potential competitors who are larger or better capitalized.

Product Development

Product development is an ongoing process for our company. We continuously attempt to develop new product lines, learn different disciplines and integrate products and programs into our offerings to add new value for our customers.

We experiment with new hardware and software technologies regularly. We sample systems to integrate with our existing products as well as new stand-alone technologies. Our newest DVR and NVR ventures include enterprise grade systems capable of capturing and recording at 4000 CIF and streaming at 2000 CIF, and adaptation of NVR technology to small scale residential use. We are energetically expanding into the IP space based on customer

interest in improved image quality and flexibility. We believe that our company is breaking new ground in providing professional quality NVR technology to small business and residential users.

Our near-term future plans include the development of a central video monitoring service and associated support software for remote assessment of DVR/NVR health and system monitoring. With the implementation and use of the products and services that we provide there are multitude of potential support services available for sale. These include, but are not limited; to virtual guard tours, mystery shoppers, loss prevention observation reporting, risk management and mitigation, facilities insurance programs, two-way access patrols, video alarm verification, off-hours facility monitoring, etc.

To further our product development efforts, we are actively seeking companies, technologies and patents we can acquire and adopt to strengthen our offerings and complete our product suites. Acquisition efforts are focused on installation capacity, product lines, software development and copyrighted or patented technology that can have an immediate impact on revenues and profit growth.

In connection with the purchase of substantially all the assets of IDS (the “Asset Purchase”), we entered into a joint venture with IDS to obtain approval of certain patent applications formerly held by IDS that are relevant to our industry which have been assigned to the joint venture. The joint venture has granted us an exclusive license to use the technology which is the subject of the patent applications in the manufacture, distribution, integration and installation of digital video surveillance devices for the security industry. If the patents are ultimately issued, the joint venture will seek to promote and market the technology underlying the patent applications, and will pursue claims against any parties potentially infringing on the protected technology. Each of IDS and us has a 50% interest in the joint venture. See “Item 3. Legal Proceedings” and “Item 7 Management’s Discussion and Analysis of Financial Conditions and Results of Operations.”

Customers

We have a wide range of customers. They include small, medium and large-sized businesses, residences, office buildings, manufacturing, warehousing and other classes of commercial operations. Our customers are individuals, private and public companies and government entities. We typically classify customers as corporations, individuals or government.

Corporate Clients

We serve several corporate clients. Corporate clients are departmentalized and usually represent much larger contracts based on a large number of smaller jobs, or a single or a few larger facilities. We receive a majority of our revenues from medium sized corporate clients.

As this middle level client is the core for our business model, we continue to enhance marketing programs in this sector. We offer incentives for referrals to other businesses in the group and plan to remain innovative as we proceed. Our corporate clients include:


	•	NAPA (retail automotive parts)


	•	Briad Group (TGI Friday restaurants)

	•	Apple American (Applebee’s restaurants)

	•	Penn State University

	•	Best Western Hotels

	•	Clearview Cinemas

	•	Hollywood Tans

	•	FISCA (New York/New Jersey Cashiers Trade Association)

	•	KCP Foods US (Sarku Japan restaurants)

Individuals

We service many types of “individual” customers. Some individuals request residential service, but most own a single location or a small business. To date, we have experienced limited demand for our installed systems in residential applications due to increased costs of installation.

We believe that successful development of a lean residential NVR system based on our TrueHybrid technology platform utilizing USB cameras will allow us to further penetrate this market. We are in progress on this and have dedicated engineering and marketing resources to the project.

Government

In 2008 we bid on and won contracts to complete a variety of projects for government customers - primarily schools - with total revenue attributable to these projects in excess of $600,000. Due to disputes with the contracting entities and corporate cash flow issues which affected our ability to pay parts suppliers in a timely fashion, we were forced to cease our efforts on a number of these projects, which negatively impacted our outstanding project bonds. As a result of these difficulties we will likely be unable to obtain further bonding for projects of this type in the future, which will severely limit our ability to pursue governmental customers on large scale projects where we are the sole entity guaranteeing performance. As such, we expect government customers to represent a very small amount of our installed surveillance system business for the foreseeable future. This situation will likely not affect our dealer business, as nothing shall prevent other bondable entities from using our products with governmental customers.

Employees

As of April 14, 2009, we had approximately 40 employees. We believe that our relationship with our employees is satisfactory and we have not suffered any labor problems since inception.


Item 1(A)	Risk Factors

We have a limited operating history, which limits the information available to you to evaluate our business, and we continue to experience operating losses.

We began our operations in June 2003. We incurred net losses of $7,938,798 and $9,784,645 during the years ended December 31, 2008 and 2007, respectively. The losses were attributable, in part, to an expansion of our installation capacity to handle projected increases in revenues and sales in 2007, non-cash charges attributable to conversions of debt to equity and the substantial softening of demand from our customer base due to the downturn in the economy. There is limited operating and financial information to evaluate our historical performance and our future prospects and our independent registered public accounting firm’s report dated April 15, 2009, on our financial statements for the year ended December 31, 2008, has stated that these factors raise substantial doubt about our ability to continue as a going concern. We face the risks and difficulties of a growth company including the uncertainties of market acceptance, competition, cost increases and delays in achieving business objectives. There can be no assurance that we will succeed in addressing any or all of these risks or that we will achieve future profitability and the failure to do so would have a material adverse effect on our business, financial condition and operating results.

We have limited liquid resources and are in default of certain obligations.

As noted above, our independent registered public accounting firm’s report dated April 15, 2009, on our financial statements for the year ended December 31, 2008, has stated that these factors raise substantial doubt about our ability to continue as a going concern. Our ability to continue in business depends upon the continued cooperation of our creditors, our ability to generate cash flow to meet our continuing obligations on a timely basis and our ability to obtain additional financing. Current liabilities at December 31, 2008, were $10,242,410 and current assets were $764,625. The difference of $9,477,785 is a working capital deficit, which is primarily the result of current debt obligations and amounts due vendors. At December 31, 2008, we were delinquent with respect to $546,400 of scheduled payments due under outstanding promissory notes and debentures, and the holders of these instruments have the right to demand payment of an aggregate of $6,916,442. We can give no assurance that we will raise sufficient capital to eliminate our working capital deficit or that our creditors will not seek to enforce their remedies against us, which include the imposition of insolvency proceedings. See “Item 3. Legal Proceedings.”

The current general economic downturn has resulted in reduced demand for our products and services, if this downturn continues it may substantially impact our ability to achieve our business plan, or remain in business.

The current downturn in the general economy has resulted in frequent delays in the decision of prospective customers to make initial evaluations of, or investments in, our products. Small to medium retailers represent a substantial portion of our business, and they have been especially

hard hit by the situation in the larger economy, which imperils their continuing operations. Larger customers with better prospects for surviving a long term economic decline are also delaying their decision making, in an attempt to reduce costs until economic activity picks up in order to maintain profitability. Though we have made efforts to ensure our ability to stay in business by altering our target customers and reducing costs via staff reductions and other austerity measures, there is no guarantee that we will be able to survive a long term recession which completely negates the ability of our traditional target customers to make infrastructure investments.

Our future growth will be harmed if we are unsuccessful in developing and maintaining good relationships with manufacturers and suppliers.

We rely on third party manufacturers and suppliers for certain components of our products and systems, and to extend us credit. Risks associated with our dependence upon third party manufacturing relationships include: (i) reduced control over delivery schedules; (ii) lack of quality assurance; (iii) poor manufacturing yields and high costs; (iv) potential lack of adequate capacity during periods of excess demand; and (v) potential misappropriation of our intellectual property.

We do not know if we will be able to maintain third party manufacturing and supply contracts on favorable terms, if at all, or that our current or future third party manufacturers and suppliers will meet our requirements for quality, quantity or timeliness. Our failure to identify, establish, expand and maintain good relationships with quality marketing and distribution entities could have a material and adverse effect on our business.

Our access to the financing we rely on to stay in business has been severely limited by the decline in the availability of credit in the larger economy

As part of our business model we rely on access to financing from traditional financial institutions and vendor lines of credit. The recent decline in the availability of credit - caused by the difficulties facing the world banking system in its entirety - has severely limited our ability to properly manage our cash flows. In 2008 we saw most of our lines of credit substantially reduced, or their terms tightened. As a result we have been forced to adjust our relationship with several vendors, and in some cases cease doing business with them completely. We have accumulated substantial balances with some suppliers of credit, and it is unclear how much additional credit or time to repay those creditors will give us. In some cases lawsuits have been filed against us by vendors seeking immediate payment, and in many cases resolution of those lawsuits will require additional spending of the company’s limited cash resources.

Our future growth is largely dependent upon our ability to develop new technologies that achieve market acceptance with acceptable margins.

Our future growth rate depends upon a number of factors, including our ability to: identify emerging technological trends in our target end-markets; develop and maintain competitive products; enhance existing products by adding innovative features that differentiate our products from those of our competitors; and develop, manufacture and bring products to market quickly and cost-effectively. Our ability to develop new products based on technological innovation can

affect our competitive position and requires the investment of significant resources. These development efforts divert resources from other potential investments in our businesses, and they may not lead to the development of new technologies or products on a timely basis or that meet the needs of our customers as fully as competitive offerings. In addition, the markets for our products may not develop or grow as management anticipates. The failure of our technologies or products to gain market acceptance or their obsolescence due to more attractive offerings by competitors could significantly reduce our revenues and adversely affect our business, operations and financial results.

We face intense competition from other providers of similar services.

We face intense competition in the markets in which we operate. Companies competing with us may introduce products that are competitively priced, that have increased performance or functionality or that incorporate technological advances not yet developed or implemented by us. Certain present and potential competitors have financial, marketing, research, and manufacturing resources substantially greater than ours.

In order to compete effectively in this environment, we must continually develop and market new and enhanced products at competitive prices and must have the resources available to invest in significant research and development activities. The failure to do so could have a material adverse effect on our business operations and financial results.

The market value of our common stock may be adversely affected by our financing activities, or by our inability to meet our business plan because we are unable to obtain financing.

If we are unable to generate on our own the necessary funds for the further development and growth of our business, we may be required to seek additional capital. This will depend on a number of factors, including, but not limited to: (i) our ability to successfully market our products and services; (ii) the growth and size of the security industry; (iii) the market acceptance of our products and services; and (iv) our ability to manage and sustain the growth of our business. Recently our shareholders and our Board of Directors increased the authorized shares of our common stock from Fifty Million (50,000,000) to One Billion (1,000,000,000), and we recently concluded a closing of Series B Convertible Preferred Stock with an initial conversion price of $.005 per share. If we need to raise additional capital, it may not be available on acceptable terms, or at all. Our failure to obtain required capital would have a material adverse effect on our business. If we issue additional equity securities in the future, you could experience further dilution or a reduction in priority of your securities.

Changes in legislation or governmental regulations or policies can have a significant impact on our financial condition, results of operations and cash flows.

We operate in regulated industries. Our operations are subject to regulation by a number of federal agencies with respect to safety of operations and equipment and financial responsibility. Intrastate operations in the United States are subject to regulation by state regulatory authorities. Our Company and our employees are subject to various U.S. federal, state and local laws and regulations, including many related to consumer protection. Most states in which we operate

have licensing laws covering the monitored security services industry. Our business relies heavily upon wireline telephone service to communicate signals, and wireline telephone companies are regulated by both the federal and state governments. Changes in laws or regulations could require us to change the way we operate, which could increase costs or otherwise disrupt operations. In addition, failure to comply with any applicable laws or regulations could result in substantial fines or revocation of our operating permits and licenses. If laws and regulations changed or we failed to comply, our financial condition, results of operations and cash flows could be materially and adversely affected.

We could face product liability claims relating to products we manufacture or install. These claims could result in significant costs and liabilities and reduce our profitability.

We face exposure to product liability claims in the event that any of our products results in personal injury or property damage. In the event that any of our products prove to be defective, we may be required to recall or redesign such products, which could result in significant unexpected costs. Any insurance we maintain may not be available on terms acceptable to us or such coverage may not be adequate for liabilities actually incurred. Any claim or product recall could result in adverse publicity against us, which could adversely affect our financial condition, results of operations and cash flows.

We depend on our manufacturers, some of which are our sole source for specific products, and our business and reputation would be seriously harmed if these manufacturers fail to supply us with the products we require and alternative sources are not available.

We have relationships with a number of manufacturers for a supply of certain of our products. Our success depends in part on whether our manufacturers are able to fill the orders we place with them and in a timely manner. If any of our manufacturers fail to satisfactorily perform their contractual obligations or fill purchase orders we place with them, we may be required to pursue replacement manufacturer relationships. If we are unable to find replacements on a timely basis, or at all, we may be forced to either temporarily or permanently discontinue the sale of certain products and associated services, which could expose us to legal liability, loss of reputation and risk of loss or reduced profit. Although we continually evaluate our relationships with manufacturers and plan for contingencies if a problem should arise with a manufacturer, finding new manufacturers that offer a similar type of product would be a complicated and time consuming process and we cannot assure you that if we ever need to find a new manufacturer for certain of our products we would be able to do so on a completely seamless basis, or at all. Our business, results of operation and reputation would be adversely impacted if we are unable to provide our products to our customers in a timely manner.

The failure of our systems could result in a material adverse effect.

Our operations are dependent upon our ability to support a complex network infrastructure and avoid damage from fires, earthquakes, floods, hurricanes, power losses, war, terrorist acts, telecommunications failures and similar natural or manmade events. The occurrence of a natural disaster, intentional or unintentional human error or actions, or other unanticipated problem could cause interruptions in the services provided by us. Any damage or failure that causes

interruptions in the service provided by us could have a material adverse effect on our business, operating results and financial condition.

Our product offerings involve a lengthy sales cycle and we may not anticipate sales levels appropriately, which could impair our profitability.

Some of our products and services are designed for medium to large commercial facilities desiring to protect valuable assets and/or prevent intrusion. Given the nature of our products and the customers that purchase them, sales cycles can be lengthy as customers conduct intensive investigations and deliberate between competing technologies and providers. For these and other reasons, the sales cycle associated with some of our products and services is typically lengthy and subject to a number of significant risks over which we have little or no control.

If we do not protect our proprietary technology and intellectual property rights against infringement or misappropriation and defend against third party assertions that we have infringed on their intellectual property rights, we may lose our competitive advantage, which could impair our ability to grow our revenues.

We do not have patent protection with respect to any of our products or systems. As a result, other parties may attempt to copy aspects of our systems or to obtain or use information that is proprietary. The scope of any intellectual property rights that we have is uncertain and is not sufficient to prevent infringement claims against us or claims that we have violated the intellectual property rights of third parties. While we know of no basis for any claims of this type, the existence of and ownership of intellectual property can be difficult to verify and we have not made an exhaustive search of all patent filings. If any of our proprietary rights are misappropriated or we are forced to defend our intellectual property rights, we will have to incur substantial costs. We may not have the financial resources to prosecute any infringement claims that we may have or defend against any infringement claims that are brought against us, or choose to defend such claims. Even if we do, defending or prosecuting our intellectual property rights will divert valuable working capital and management’s attention from business and operational issues.

If we infringe the rights of others we could be prevented from selling products or forced to pay damages.

If our products, methods, processes, and other technologies are found to infringe the proprietary rights of other parties, we could be required to pay damages, or we may be required to cease using the technology or to license rights from the prevailing party. Any prevailing party may be unwilling to offer us a license on commercially acceptable terms.

Our business may subject us to risks related to nationwide or international operations.

If we offer our products and services on a national, or even international, basis, distribution would be subject to a variety of associated risks, any of which could seriously harm our business, financial condition and results of operations.

These risks include:


	•	greater difficulty in collecting accounts receivable;

	•	satisfying import or export licensing and product certification requirements;

	•	taxes, tariffs, duties, price controls or other restrictions on out-of-state companies, foreign currencies or trade barriers imposed by states or foreign countries;

	•	potential adverse tax consequences, including restrictions on repatriation of earnings;

	•	fluctuations in currency exchange rates;

	•	seasonal reductions in business activity in some parts of the country or the world;

	•	unexpected changes in local, state, federal or international regulatory requirements;

	•	burdens of complying with a wide variety of state and foreign laws;

	•	difficulties and costs of staffing and managing national and foreign operations;

	•	different regulatory and political climates and/or political instability;

	•	the impact of economic recessions in and outside of the United States; and

	•	limited ability to enforce agreements, intellectual property and other rights in foreign territories.

The market price of our common stock may fluctuate significantly in response to factors, some of which are beyond our control, such as product liability claims or other litigation; the announcement of new products or product enhancements by us or our competitors; developments concerning intellectual property rights and regulatory approvals; quarterly variations in our competitors’ results of operations; changes in earnings estimates or recommendations by securities analysts; developments in our industry; and general market conditions and other factors, including factors unrelated to our own operating performance.

As a public company, we will incur substantial expenses.

We are publicly-traded and, accordingly, subject to the information and reporting requirements of the U.S. securities laws. The U.S. securities laws require, among other things, review, audit, and public reporting of our financial results, business activities, and other matters. Recent SEC regulation, including regulation enacted as a result of the Sarbanes-Oxley Act of 2002, has also substantially increased the accounting, legal, and other costs related to becoming and remaining an SEC reporting company. The public company costs of preparing and filing annual and quarterly reports, and other information with the SEC and furnishing audited reports to stockholders will cause our expenses to be higher than they would be if we were privately-held. In addition, we will incur substantial expenses in connection with the preparation of Registration Statements and related documents with respect to the registration of shares issued in our offerings. These increased costs may be material and may include the hiring of additional

employees and/or the retention of additional advisors and professionals. Our failure to comply with the federal securities laws could result in private or governmental legal action against us and/or our officers and directors, which could have a detrimental effect on our business and finances, the value of our stock, and the ability of stockholders to resell their stock.

Only a portion of our management has significant experience in public company matters.

Only a portion of our management team has had previous significant public company management experience or responsibilities, which could impair our ability to comply with legal and regulatory requirements such as the Sarbanes-Oxley Act of 2002 and applicable federal securities laws including filing required reports and other information required on a timely basis. We cannot give assurance that our management will be able to implement and affect programs and policies in an effective and timely manner that adequately respond to increased legal, regulatory compliance and reporting requirements imposed by such laws and regulations. Our failure to comply with such laws and regulations could lead to the imposition of fines and penalties and further result in the deterioration of our business.

Our compliance with the Sarbanes-Oxley Act and SEC rules concerning internal controls may be time consuming, difficult and costly.

It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the adoption of the Sarbanes-Oxley Act of 2002. We may need to hire additional financial reporting, internal controls and other finance staff in order to develop and implement appropriate internal controls and reporting procedures. If we are delayed in complying or unable to comply with Sarbanes-Oxley’s internal control requirements, we may experience delay in obtaining the independent accountant certifications that the Sarbanes-Oxley Act requires publicly traded companies commencing after December 15, 2008 to obtain or may not be able to obtain those certifications at all.

Our common stock may be considered a “penny stock” and may be difficult to sell.

The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market or exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock has been below $5.00 per share and therefore may be designated as a “penny stock” according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell the common stock and may affect the ability of investors to sell their shares.

Our common stock is thinly traded on the OTC Bulletin Board, and we cannot give assurance that our common stock will become liquid or that it will be listed on a securities exchange.

Our common stock is quoted on the OTC Bulletin Board, which provides significantly less liquidity than a securities exchange (such as the American or New York Stock Exchange) or an automated quotation system (such as the NASDAQ National Market or NASDAQ Capital Market). We cannot give assurance that we will be able to meet the listing standards of any

stock exchange, such as the American Stock Exchange or the Nasdaq National Market, or that we will be able to maintain any such listing. Such exchanges require companies to meet certain initial listing criteria including certain minimum bid prices per share. We may not be able to achieve or maintain such minimum bid prices or may be required to effect a reverse stock split to achieve such minimum bid prices. Our common stock is currently quoted on the OTC Bulletin Board. Until our common stock is listed on an exchange, we expect that it will continue to be quoted on the OTC Bulletin Board. In this venue, however, an investor may find it difficult to obtain accurate quotations of our common stock and may experience a lack of buyers to purchase such stock or a lack of market makers to support the stock price. In addition, if we failed to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our common stock to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, which may further affect its liquidity. This would make it more difficult for us to raise additional capital.

Our shareholders are subject to the risk of significant dilution.

As of December 31, 2008, we had 10,808,277 shares of common stock outstanding. In April 2009, we issued 275 shares of Series B Convertible Preferred Stock which are convertible into an aggregate 55,000,000 shares of our common stock at a conversion price of $.005 per share. As a result of the issuance of the Series B Convertible Preferred Stock, the conversion price of our Series A Convertible Preferred Stock as well as the exercise price of certain warrants, was adjusted to $.005 per share. As a result, as of April 15, 2009, an aggregate of 217,500,000 shares of common stock were issuable upon the conversion of our Series A Preferred Stock and convertible notes, and an additional 435,000 shares of common stock were issuable at an exercise price of $.005 under outstanding warrants. Further, 7,500,000 shares of common stock are issuable upon conversion of our outstanding 5% convertible secured debentures at a conversion price of $.50 per share. Issuances of common stock upon the conversion of our convertible preferred stock and convertible debt and the exercise of our warrants will significantly dilute the interest of holders of our common stock. In addition, sales of these shares could depress the market price of our common stock.

We do not anticipate paying dividends in the foreseeable future, and the lack of dividends may have a negative effect on the stock price.

We currently intend to retain our future earnings to support operations and to finance expansion and, therefore, do not anticipate paying any cash dividends on our capital stock in the foreseeable future.


Item 2.	Properties

Our corporate headquarters are located in Toms River, New Jersey under a lease for approximately 4,500 square feet of office space expiring in January, 2011. In an effort to reduce costs, we have ceased to utilize physical facilities in other states in which we operate. We now drop ship materials directly to job sites and dispatch technicians directly from their homes.

We believe that our facilities are adequate and suitable for our current operations. To the extent that other space is required, we believe that such space is readily available.


Item 3.	Legal Proceedings

On March 27, 2009, we were served with a summons and a complaint in which we, our CEO Jason Gonzalez, our current Board members Robert Moe, Martin McFeely, Michael Ryan and Col. Jack Jacobs (ret.), and our former CFO Howard Herman were named as defendants in a suit filed by Mr. Russ, IDS and the Russ & Russ PC Defined Benefit Pension Plan. In the complaint, which was filed in the United States District Court for the Eastern District of New York, the plaintiffs allege, among other things, misrepresentation, securities fraud and breach of duty by the defendants, pertaining to, among other things, the Company’s restatement of financial results for the periods ended August 31, 2007 and September 30, 2007, and the Asset Purchase. The Complaint also asserts claims regarding non-payment of amounts allegedly due to the Plaintiffs pursuant to agreements entered into in connection with the Asset Purchase and the issuance of a note to Russ and Russ PC Defined Benefit Pension Plan. We believe that the Plaintiffs’ claims regarding misrepresentation, securities fraud and breach of duty are entirely without merit and intend to vigorously defend against them. The plaintiffs seek compensatory and punitive damages in a number of their claims. If the plaintiffs succeed in any of their claims and obtain a judgment against us, payment of that judgment would have a material adverse effect on our financial condition and results of operations. The filing of this lawsuit, substantial reduces the likelihood of us ever receiving any return on our investment in our joint venture with IDS.

We have been named as the defendant in a number of lawsuits pertaining to vendor lines of credit which have gone beyond permitted amounts and terms. These suits seek judgment ranging in value from $4,000 to $70,000. No individual lawsuit represents a substantial risk to us, but taken in whole they could have a material adverse effect on our financial conditions and results of operations.


Item 4.	Submission of Matters to a Vote of Security Holders

During the quarter ended December 31, 2008, no matter was submitted to a vote of our stockholders through the solicitation of proxies or otherwise.

PART II


Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is quoted on the OTC Bulletin Board under the symbol VMSY.OB. Prior to July 17, 2007, there was no trading in our common stock. The last sale price of our common stock on April 14, 2009 was $0.05. As of April 14, 2009, there were approximately 150 holders of record of our common stock.

We have not paid any dividends on our common stock and do not anticipate paying dividends in the foreseeable future. The terms of our 5% secured convertible debentures issued in November 2007 prohibit the payment of dividends.

The following table sets forth information with respect to the trading price of our common stock as reported by the OTC Bulletin Board during the year ended December 31, 2008 and 2007:


Fiscal Year Ended December 31, 2008	Low		High


First Quarter	$	0.80	$	1.47
Second Quarter	$	0.35	$	1.15
Third Quarter	$	0.42	$	1.74
Fourth Quarter	$	0.13	$	0.83

Fiscal Year Ended December 31, 2007	Low		High


First Quarter		—		—
Second Quarter		—		—
Third Quarter	$	2.10	$	4.00
Fourth Quarter	$	0.55	$	3.50

In April 2009, we issued 275 shares of Series B Convertible Preferred Stock to 37 accredited investors for an aggregate purchase price of $275,000. We relied upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder, in connection with such transaction.


Item 6.	Selected Financial Data

Not applicable, as we are a smaller reporting company


Item 7.	Management’s Discussion and Analysis of Financial Conditions and Results of Operations

Overview

On July 17, 2007, we acquired all of the outstanding capital stock of Visual Management Systems Holding, Inc., a New Jersey corporation, in connection with the merger of our wholly owned subsidiary with and into Visual Management Systems Holding, Inc. In connection with the merger, we changed our corporate name from Wildon Productions, Inc. to Visual Management Systems, Inc. and the former stockholders of Visual Management Systems Holding, Inc. received shares of our common stock representing approximately 76.5% of our outstanding common stock after giving effect to the merger. In addition, our board of directors was reconstituted at the effective time of the merger with designees of Visual Management Systems Holding, Inc. replacing our then current board of directors. Further, at the effective time of the merger, we abandoned our prior business plan and the operations of Visual Management Systems Holding, Inc. acquired as a result of the merger became our sole line of business. The merger transaction was therefore accounted for as a reverse acquisition with

Visual Management Systems Holding, Inc. as the acquiring party and Visual Management Systems, Inc. (formerly Wildon Productions, Inc.) as the acquired party. Accordingly, when we refer to our business and financial information relating to periods prior to the merger, we are referring to the business and financial information of Visual Management Systems Holding, Inc., unless the context otherwise requires. The following discussion and analysis should be read in conjunction with the financial statements, including the notes thereto and other information presented in this report.

On April 3, 2008, we purchased substantially all the assets IDS. IDS is the developer and manufacturer of the TechEye Digital Video (DVR) Recording Technology. In exchange for IDS’ assets we issued to IDS an unsecured convertible note in the principal amount of $1.544 million, bearing no interest until April 3, 2011, its maturity date, and agreed to pay cash totaling $42,000 payable over a total of seven months. If not converted, or paid within 30 days of maturity, then from and after the maturity date, the convertible note will bear annual interest at 12%. The convertible note is convertible at the discretion of IDS into shares of our common stock after May 31, 2010, or upon the approval of a majority in interest of the holders of our then outstanding 5% secured convertible debentures, or any securities issued on conversion thereof, at a conversion price of $1.15 per share. We have agreed to register the shares issuable upon the conversion of the note for public resale

In connection with the Asset Purchase, we entered into a four year consulting agreement with Jay Edmond Russ, the principal shareholder of IDS who served on our Board of Directors from the closing of the purchase in April 2008 until his resignation in December 2008, which requires us to pay Mr. Russ $75,000 per year for consulting services. See “Item 3. Legal Proceedings.”

Results of Operations for the Years Ended December 31, 2008 and 2007

Net Revenues

Net revenues increased approximately $40 thousand, or 1% to approximately $6.4 million during the year ended December 31, 2008 from approximately $6.3 million during the year ended December 31, 2007. Annualized revenue remained similar to 2007, due to a reduced demand for our products and services in the fourth quarter, resulting from the generalized slowdown in the economy during that period.

Cost of Goods Sold

Total cost of goods sold increased approximately $157 thousand, or 5% to approximately $3.6 million for the year ended December 31, 2008, from approximately $3.4 million during the year ended December 31, 2007. This increase was primarily due to higher cost of goods sold in connection with lower margin bid jobs.

As a result, gross profit for the year ended December 31, 2008 decreased by about $113,000 from $2.9 million to $2.8 million and gross profit as a percentage of revenue declined from 46.2% to 44.0% for the year ended December 31, 2008, both as a result of lower margin bid jobs experienced in 2008.

Operating Expenses

Operating expenses increased approximately $0.5 million to $9.0 million for the year ended December 31, 2008, from approximately $8.5 million for the year ended December 31, 2007.

This increase was primarily attributable to increases in (i) software amortization as a result of an impairment of $0.6 million, (ii) amortization costs for deferred financing costs of $0.8 million (iii) investor relations expense of about $0.6 million and (iv) depreciation and other miscellaneous expenses of $0.2 million offset by decreases in wages and stock based compensation of $1.7 million.

Debt Conversion Expense

Debt conversion expense decreased by approximately $0.8 million as there was no debt conversion expense for the year ended December 31, 2008

Interest Expense

Interest expense for the year ended December 31, 2008 decreased by $1.6 million to approximately $1.8 million, from $3.4 million in the year ended December 31, 2007. The decrease was primarily the result of lower deferred debt amortization, totaling approximately $3.4 million offset by (i) increased interest on loans in default of $1.1 million (ii) increased interest relating to convertible debt of about $0.4 million and (ii) interest on short term loans of approximately $0.1 million.

Income Tax Expense (Benefit)

We recorded a provision for federal, state and local income tax of approximately $4,060 for the year ended December 31, 2007. This amount has been included in operating expenses for 2008 due to its insignificant size.

Net Income (Loss)

As a result of the items discussed above there was a net loss of approximately $7.9 million for the year ended December 31, 2008 compared with a net loss of approximately $9.8 million for the year ended December 31, 2007. In addition we recorded a deemed dividend on the issuance of preferred stock of $0.6 million in 2007, which made the net loss applicable to common stockholders of approximately $10,413,000 for the year ended December 31, 2007.

Liquidity and Capital Resources

General.

Our financial statements are prepared on a going concern basis, which assumes that we will realize our assets and discharge our liabilities in the normal course of business. At December 31, 2008, we had cash of $16,186, a working capital deficit of approximately $9,500,000,

stockholders’ deficit of approximately $6,913,000, and an outstanding long term portion balance of $248,000 of debt, in comparison, at December 31, 2007, we had cash and equivalents of approximately $707,000, a working capital deficit of approximately $587,000, an outstanding long term portion balance of approximately $384,000 of other debt plus $2,818,334 of convertible debt. Our financial condition as of December 31, 2008 raises doubt as to our ability to continue our normal business operations as a going concern. Accordingly, our independent registered public accounting firm’s report dated April 15, 2009, on our financial statements for the year ended December 31, 2008 has stated that these factors raise substantial doubt about our ability to continue as a going concern.

Cash decreased from $707,025 at December 31, 2007 to $16,186 at December 31, 2008, primarily as a result of (i) $819,088 of cash used for operations, (ii) $232,364 of cash used for investing, (iii) repayment of short term notes of $111,000, (iv) repayment of $109,062 of long term debt, and (v) capital lease repayments of $39,558. This was offset by (i) proceeds from the issuance of short term notes of $414,950, (ii) proceeds from the exercise of warrants of $124,922, and (iii) net proceeds from a shareholder loan of $80,361.

Cash used by operating activities for the year ended December 31, 2008 was approximately $819,000 as compared to $3,941,000 for the preceding year, an decrease of $3.1 million. This is primarily the result of increased non-cash operating expenses and amortization charges as well as improved collections of amounts due from customers in 2008.

Cash used by investing activities for the year ended December 31, 2008 was approximately $232,000 as compared to approximately $99,000 for the preceding year, an increase of $133,000. This is primarily the result of additional capitalized software offset by lower purchases of capitalized assets.

Cash flow from financing activities for the year ended December 31, 2008 was approximately $360,000 as compared to $4,750,000 for the preceding year, a decrease of $4,386,000. This is primarily the result of proceeds from preferred stock and convertible debt issuances in 2007.

Commitments and Contingencies.

We are a party to a $50,000 term loan agreement with JPMorgan Chase Bank, N.A. which provides for interest at a rate of 8.5% per annum and which is payable in equal monthly installments through October 2013. As of December 31, 2008, $37,662 was outstanding under the loan agreement.

We are a party to a $50,000 line of credit with JPMorgan Chase Bank, N.A. which as of December 31, 2008 provided for interest at a rate of 4.75% per annum and which is payable in variable monthly installments. As of December 31, 2008, the outstanding balance on the line of credit was $49,981, which automatically renews every year until paid in full.

We had $297,324 in principal balance on auto loans outstanding as of December 31, 2008. These loans, which bear interest at rates ranging from 3.9% to 8.69%, mature at various dates through November 2012.

We entered into capital leases in the ordinary course of business for office and warehouse space and equipment. The value of capital lease obligations of leased equipment as of December 31, 2008 was $123,712.

On November 30, 2007, we entered into a securities purchase agreement with three affiliated institutional investors for the sale of original issue discount 5% senior secured convertible debentures and common stock purchase warrants. We refer to this transaction as our November 2007 Private Placement. In this transaction, we issued an aggregate of $3.75 million principal amount of debentures at an original issue discount of 20% and warrants to purchase an aggregate of 11,250,000 shares of our common stock. The warrants expire in November 2014 and have an exercise price of $1.15 per share, subject to adjustment, including full ratchet anti-dilution protection.

Since January 1, 2008, we have been required to make quarterly payments of interest under the convertible debentures issued in our November 2007 Private Placement. We have also been required to make monthly principal payments in the aggregate of $208,333 since December 2008. On August 28, 2008, we entered into an Amendment and Waiver Agreement with each of the holders of these debentures pursuant to which the debenture holders have:

- waived the Company’s compliance with the provisions of the debentures which require us to have a registration statement covering the shares issuable upon the conversion of the debentures declared effective under the Securities Act of 1933 and maintain the effectiveness of such registration statement;

- waived the anti-dilution provisions of the debentures which, as a result of prior transactions, would otherwise result in an adjustment to the conversion price of the debentures to $.40 per share;

- waived certain provisions of the agreement pursuant to which the debentures were issued which restrict our ability to issue common stock and securities convertible into or exercisable for common stock;

- waived all registration rights previously granted to the debenture holders with respect to the shares issuable upon the conversion of the debentures and exercise of the warrants issued to the debenture holders in connection with the transaction, provided that we do not fail to satisfy the current public information requirements under Rule 144(c) of the Securities Act of 1933 for a period of three (3) consecutive trading days or more. In the event of such a public information failure we will be required to file a registration statement covering the shares issuable upon the debentures and warrants and will be subject to monetary penalties if it fails to obtain and maintain the effectiveness of the registration statement.

In consideration of the waivers and in lieu of (i) $250,000 of liquidated damages that the debenture holders alleged were owed as a result of the our failure to register the shares underlying the debentures and warrants for public resale and (ii) $46,875 of accrued and unpaid interest owed to the debenture holders, we agreed to issue shares of our common stock valued at $296,875 (based upon a per share price equal to 80% of the average of the value weighted average price of the common stock for the 20 trading days prior to the date of the amendment and waiver) to the debenture holders pro-rata according to their percentage ownership of the debentures. We agreed to register the new shares for resale under the Securities Act of 1933, as amended.

The exercise price of the warrants was also adjusted to $.40 per share.

On the first day of each month since December 1, 2008 our monthly redemptions of principal for the debentures have became due. Each of these monthly redemption amounts totals $208,333 and has not been paid by us. Additional redemption payments will also come due on the first day of each calendar month until May 2011.

Quarterly interest payments owed by us to the holders of the debentures in the amount of $46,875 also came due on October 1, 2008 January 1, 2009 and April 1, 2009 and were also not paid by us.

We have not filed a registration statement in compliance with our August 2008 Amendment and Waiver Agreement, and have received no formal written waiver of such obligation; however the holders of the debentures have advised us that that they will not require us to file a registration statement.

Non-payment of these amounts, and the failure to file an appropriate registration statement may be considered default events under the relevant agreements between us and the holders of the debentures, but no formal notice of default or request for remedies in the case of default have been issued to the us by the holders. As a result of default, the holders have the right to demand payment of $4,875,000 (representing 130% of the principal amount of the debentures currently outstanding), as well as all accrued and unpaid interest. We continue to communicate with the holders and are seeking a resolution to the potential default situation.

Recent Financing Activity

Financing of the IDS Asset Purchase

In connection with the April 3, 2008 purchase of substantially all the assets of IDS, we issued to IDS an unsecured convertible note in the principal amount of $1.54 million, bearing no interest until April 3, 2011. If not converted, or paid within 30 days of maturity, then from and after the maturity date, the convertible note will bear annual interest at 12%. The convertible note is convertible at the discretion of IDS into shares of our common stock after May 31, 2010, or upon the approval of a majority in interest of the holders of our then outstanding 5% secured convertible debentures, or any securities issued on conversion thereof, at a conversion price of $1.15 per share. We have agreed to register the shares issuable upon the conversion of the note for public resale.

As of December 31, 2008, $24,000 of payments were past due under the note issued to IDS. In April 2009, IDS and its principal shareholder instituted an action seeking to collect the entire $1,544,000 due under the note as well as $206,250 remaining due under the consulting agreement entered into in connection with the Asset Purchase. See “Item 3. Legal Proceedings.”

Issuance of Original Issue Discount Notes

Between April and September 2008, we issued a series of original issue discount notes to individual investors (the “OID Notes”). The OID Notes totaled $499,450 in face value, and yielded net proceeds to us of $414,950 after fees paid to consultants and placement agents. $99,450 in total face value of the OID Notes was retired via payments to the holders made in June 2008 and October 2008 totaling $86,500. The remaining notes bear maturities of between nine and 12 months, and come due in periods between January and September 2009. No payments have been made on any of the OID Notes since the October 2008 payment.

Re-issuance of Promissory Note

On June 10, 2008, the we issued a promissory note (the “New Note”) in the principal amount of $267,192 to the Russ & Russ PC Defined Benefit Pension Plan - a pension plan formed for the benefit of Mr. Russ - in exchange for the surrender of a promissory note in the principal amount of $250,000 (the “Old Note”) which was issued by us to an individual lender in

October 2007 and assigned to the pension plan before the exchange. At the time of the exchange, accrued and unpaid interest under the Old Note, which was past due, was $17,192. The New Note provided for interest at a rate of 10% per annum and became due on December 10, 2008. As further consideration for entering into the exchange transaction, the Company issued to Mr. Russ options to acquire 20,000 shares of the our common stock under the Company’s Equity Incentive plan at an exercise price of $0.40 per share

Exercise of Placement Agent Warrants

Between August and September 2008 we sold 276,857 shares of our common stock pursuant to exercise of certain warrants to purchase shares of our common stock, originally issued to Kuhns Brothers, Inc., the placement agent for our November 2007 private placement of 5% senior secured convertible debentures. As a result of the transaction we received net proceeds of $124,922.

Loan from Chief Operating Officer

In 2008 Caroline Gonzalez our Chief Operating Officer loaned us $97,420 via extension of lines of credit on personal credit cards issued to her by traditional unsecured consumer credit providers. Since the date of the loan we have been making monthly payments pursuant to the relevant card terms, which include interest rates ranging from 9.49% to 27.99%. As of December 31, 2008 the outstanding balance on these accounts was $80,361.


Item 8.	Financial Statements and Supplementary Data

The financial statements of the Company called for by this item are set forth herein commencing on page F-1 of this report.


Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

Not applicable.


Item 9A.	Controls and Procedures

Evaluation of disclosure controls and procedures

As required by Rule 13a-15 under the Exchange Act, as of the end of the period covered by this Annual Report on Form 10-K, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Disclosure controls and procedures are controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act is accumulated

and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

The evaluation made by our Chief Executive Officer and Chief Financial Officer of our disclosure controls and procedures included a review of the controls’ objectives and design, our implementation, and the effect of the controls on the information generated for use in this annual report and previous reports to the Commission. In the course of the evaluation, we sought to identify data errors, control problems or acts of fraud and to confirm that appropriate corrective action, including process improvements, were being undertaken. The overall goals of these various evaluation activities are to monitor our disclosure controls and procedures and to make modifications as necessary. Our intent in this regard is that the disclosure controls and procedures will be maintained as dynamic systems that change (including with improvements and corrections) as conditions warrant. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2008.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles (“GAAP”). Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets; (2) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has evaluated the effectiveness of internal control over financial reporting as of December 31, 2008 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Based on their evaluation, our Chief Executive Officer and Chief Financial Officer identified a number of material weaknesses in our internal control over financial reporting. These material weaknesses included:


-	A lack of sufficient resources and an insufficient level of monitoring and oversight, which restricts our ability to gather, analyze and report information relative to the financial statement assertions in a timely manner.

-	The limited size of the accounting department makes it impracticable to achieve an appropriate segregation of duties and to implement the formal documented closing and reporting calendar and checklists in a timely manner on a consistent basis.

-	There are no formal cash flow forecasts, business plans, and organizational structure documents to guide the employees in critical decision-making processes.

-	Material weaknesses identified in the past including deficiencies in information technology have not been fully remediated.

As a result of the material weaknesses described above, we have concluded that, as of December 31, 2008, our internal control over financial reporting was not effective.

Remediation of Material Weaknesses

We intend to take action to hire additional staff, implement stronger financial reporting systems and software and develop the adequate policies and procedures with said enhanced staff to ensure all noted material weaknesses are addressed and resolved. However, due to the our cash flow constraints, the timing of implementing the above has not yet been determined, and may not be possible.

Our management does not expect that our disclosure controls or our internal controls over financial reporting will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of a control system are met. Further, any control system reflects limitations on resources, and the benefits of a control system must be considered relative to its costs. These limitations also include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. In addition, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of a control. A design of a control system is also based upon certain assumptions about potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

Changes in Internal Control over Financial Reporting

During the quarter ended December 31, 2008, due to cash flow constraints, the size of the

accounting department was reduced and as a result, the formal monthly closing schedules could not be followed.

Sobel & Co., LLC was not required to and did not perform a review of our internal controls over financial reporting.


Item 10.	Directors, Executive Officers, and Corporate Governance

The following table sets forth information regarding the members of our Board of Directors and our executive officers. The directors listed below will serve until the next annual meeting of the Company’s stockholders.


	Name	Age		Position


Jason Gonzalez		37	President, Chief Executive Office and Director

Michael Ryan		50	Director

Colonel Jack Jacobs		63	Director

Martin McFeely		53	Director

Robert Moe		57	Director

William Malenbaum		80	Director

James (J.D) Gardner		56	Chief Financial Officer

Caroline Gonzalez		34	Chief Operating Officer

Jonathan Bergman		50	Vice President Marketing and Sales

W. Geoffrey Martin		33	General Counsel

Jason Gonzalez is the founder of Visual Management Systems Holding, Inc. and has been involved in the security industry for five years. Prior to launching Visual Management Systems Holding, Inc., he served as Chief Operating Officer for Infinite Sales, Inc., a wholly owned subsidiary of Freedom Systems, Inc., a leading distributor of DVRs in the United States. Mr. Jason Gonzalez was at Freedom Systems, Inc. from February 2002 until August 2003. Before his appointment to Chief Operating Officer, Mr. Gonzalez served in various capacities for Freedom Systems, Inc. in sales and sales management. Prior thereto he was employed by Merrill Lynch as a vetting manager in ML Direct technology banking. He also worked for Olde, and William R. Hough & Co. as a registered representative, general and municipal securities principal. Mr. Gonzalez graduated from Embry-Riddle Aeronautical University where he earned a BS in Aviation Business Administration. He completed an additional 20 credits in Aeronautical Science and Aerospace Engineering. Mr. Gonzalez is a graduate of the SIA Securities Industry Institute. Mr. Gonzalez and Caroline Gonzalez are husband and wife.

Michael Ryan joined our Board of Directors in July 2007 and has spent over 20 years in the security industry. He owns and operates Fire Code Services, a New Jersey based fire protection systems and services business. Fire Code Services provides fire safety equipment to skyscrapers throughout New York City and New Jersey.

Colonel Jack Jacobs U.S. Army (Retired), who joined our Board of Directors in July 2007, earned the Medal of Honor for exceptional heroism on the battlefields of Vietnam. He also holds three Bronze Stars and two Silver Stars. Colonel Jacobs served on the faculty of the U.S. Military Academy at West Point and the National War College in Washington, D.C. After retirement, he founded and was chief operating officer of Auto Finance Group. He has served as a managing director of Bankers Trust Co. and later co-founded an investment management business for Lehman Brothers. He is a member of the Council on Foreign Relations and is a director of the Medal of Honor Foundation. Colonel Jacobs currently serves as a military analyst for NBC/MSNBC.

Martin McFeely, who joined our Board of Directors in July 2007, has served as Chief Financial Officer of Quick Service Management, the parent company of El Rancho Foods, which operates approximately 89 Taco Bell and other franchises.

Robert Moe, who joined our Board of Directors in July 2007, is the founder and chief executive officer of RAM Capital Corp., an investment banking firm specializing in providing industry specific financial and operational advisory services to companies seeking to implement and finance high growth strategies.

William Malenbaum, who joined our board in January 2009, has more than 50 years of accounting experience with concentrations in cost accounting and credit management as well as sales and sales management. Mr. Malenbaum is retired, but has remained active in a variety of consulting capacities since 2000.

James (J.D.) Gardner, was appointed as our Chief Financial Officer in June 2008. From April 2008 until his appointment as Chief Financial Officer, he served as a consultant to our finance and accounting department. From May 2005 to February 2008, Mr. Gardner served as Chief Financial Officer and Chief Operating Officer of Amedia Networks, Inc., a publicly held company engaged in developing next generation ultra broadband switched Ethernet home gateways and home networking solutions for voice video and data services. From January 2005 through May 2005, Mr. Gardner served as Chief Operating Officer of dotPhoto, a private company engaged in on-line photo processing and wireless application development for cellular telephones. From January 2002 through April 2004, Mr. Gardner served as Chief Executive Officer of Comstar Interactive, a private company engaged in the wireless credit card processing field. He has also held the position of Chief Financial Officer of BellSouth Wireless Data (renamed Cingular Interactive (May 1999 through November 2001), and as chief financial officer of BellSouth Mobile Data (November 1995 through May 1999) and chief financial officer of RAM/BSE Communications L.P. from 1991 through 1995, with all companies involved in the provision of wireless packet data networks and services, principally in the US and Europe. Mr. Gardner also held several other senior executive positions at BellSouth and AT&T in the areas of Financial Management, Domestic and International corporate finance, issuing debt and equity and the related rating agency and investment banking interfaces, shareholder relations and a number of other treasury, accounting and finance positions.

Caroline Gonzalez joined Visual Management Systems Holding, Inc. in 2004 and currently serves as our Chief Operating Officer. In this capacity she manages vendor and key

client relationships, oversees manufacturing and installation operations and develops training programs. From inception until August 2006, Ms Gonzalez co-managed Visual Management Systems Holding, Inc.’s financial operations as controller. Ms. Gonzalez brings franchise operations experience to our Company, having served from 1997 until 2001 as Director of Education and General Manager for two different franchisees of Sylvan Learning Centers where she was responsible for four different centers in multiple states. Mr. Gonzalez also worked in public education from 1997 until 1999 and for the 2001 and 2002 school years. She graduated from the University of Central Florida with a BS in Elementary Education and is the wife of Jason Gonzalez.

Jonathan Bergman joined Visual Management Systems Holding, Inc. in September 2003 as Vice President-Marketing and Sales. From 2001 to August 2003, he served in various capacities for Freedom Systems, Inc, including Loss Prevention Consultant, Area Manager and Regional Manager. From 1996 to 2001, Mr. Bergman served as a General Manager and the Director of Food and Beverage Operations for Inn America Hospitality. Prior thereto he owned and operated Advantage Building Maintenance, a general building services contractor. Mr. Bergman attended NY City Technical College and Florida International University and earned his AS in Business Management and his BS in Hospitality/Business Management.

W. Geoffrey Martin was hired to serve as our General Counsel in November 2007. Mr. Martin is admitted to the bar of the State of Illinois, and as in-house counsel in the State of New Jersey and from January 2006 until his hiring, operated his own law firm specializing in commercial litigation. Mr. Martin received his Juris Doctorate from the University of Illinois in 2005, and graduated from the University of Illinois in May 1999. Mr. Martin has extensive financial services experience and served as a financial product designer for US Bancorp in 2002 and as both a project manager for financial software development and as an Assistant Vice President for business development and marketing for Merrill Lynch from June 1999 until September 2001.

Our Audit Committee consists of Michael Ryan and Marty McFeely. Our Board of Directors has assigned Mr. McFeely as the Audit Committee’s financial expert. Mr. McFeely is not considered independent under the rules of the American Stock Exchange.

We have adopted a code of conduct that applies to all of our directors, officers and employees, including our Chief Executive Officer, Chief Financial Officer, and other senior financial advisors. Our Code of Conduct is posted at www.vmscctv.com.


Item 11.	Executive Compensation

Executive Compensation

The following table sets forth information concerning the annual and long-term compensation for services in all capacities to Visual Management Systems, Inc. for the years ended December 31, 2008 and 2007 of the Chief Executive Officer and each other executive officer whose total annual contracted-for compensation for the year ended December 31, 2008 exceeded $100,000 (the “named executive officers”). No other executive officer’s contracted-for annual salary and bonus for the year ended December 31, 2008 exceeded $100,000.

SUMMARY COMPENSATION TABLE


Name and Principal Position	Year	Salary ($)(1)		Bonus ($)		Stock Awards ($)		Option Awards ($)			Non- Equity Incentive Plan Compen- sation ($)	Nonqualified Deferred Compensa- tion Earnings ($)	All Other Compensa- tion ($)	Total ($)


Jason Gonzalez, President and Chief Executive Officer
	2008	$	123,956		—									$	123,956
	2007	$	136,923	$	85,000		—		—		—	—	—	$	221,923

Jonathan Bergman, Vice President-Marketing and Sales
	2008	$	115,845		—			$	11,655	(2)				$	127,500
	2007	$	111,692	$	62,500		—		—		—	—	—	$	174,192

W. Geoffrey Martin, General Counsel	2008	$	89,900		—			$	47,500	(3)				$	137,400
W. Geoffrey Martin, General Counsel	2007	$	4,846		—		—		—		—	—	—	$	4,846

James (J.D. Gardner) Chief Financial Officer
	2008	$	65,792		—			$	47,500	(4)				$	113,292
	2007		—		—		—		—		—	—	—		—

Caroline Gonzalez, Chief Operating Officer
	2008	$	106,921		—		—	$	4,350	(5)				$	111,271
	2007	$	114,160	$	62,500		—	$	165,625					$	342,285


(1)	The Chief Executive Officer and each other executive officer have agreed to defer receipt of their full salary until Visual Management Systems, Inc.’s financial performance improves. The sums detailed in the Salary column for 2008 represent the actual amounts paid in compensation to each officer. Salaries accrued but not paid are as follows: Mr. Gonzalez $56,043; Ms. Gonzalez $43,078; Mr. Bergman $28,154; Mr. Martin $30,099; and Mr. Gardner $18,207.

(2)	On June 12, 2008, the purchase price of Mr. Bergman’s option to purchase 225,000 shares of Visual Management Systems, Inc. common stock was adjusted from $2.50 to $0.40. The fair value of the re-priced options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used: dividend yield of 0%; expected volatility of 120%; risk free rate of return of 3.73%; and expected life of 7 years. The difference in the weighted average fair value of these options was $0.05 per share.

(3)	On June 12, 2008, Mr. Martin was granted an option to purchase 125,000 shares of Visual Management Systems, Inc. common stock. Options with respect to 62,500 shares vested on the one year anniversary of


	the date of grant and options with respect to the remaining 62,500 shares are scheduled to vest on the two year anniversary of the date of grant. The options have a term of ten years and an exercise price of $0.40 per share. The fair value of the options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used: dividend yield of 0%; expected volatility of 120%; risk free rate of return of 4.1%; and expected life of 10 years. The weighted average fair value of these options was $0.38 per share.

(4)	On June 12, 2008, Mr. Gardner was granted an option to purchase 125,000 shares of Visual Management Systems, Inc. common stock. Options with respect to 62,500 shares vested on the one year anniversary of the date of grant and options with respect to the remaining 62,500 shares are scheduled to vest on the two year anniversary of the date of grant. The options have a term of ten years and an exercise price of $0.40 per share. The fair value of the options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used: dividend yield of 0%; expected volatility of 120%; risk free rate of return of 4.1%; and expected life of 10 years. The weighted average fair value of these options was $0.38 per share.

(5)	On June 12, 2008, the purchase price of Ms. Gonzalez’s option to purchase 125,000 shares of Visual Management Systems, Inc. common stock was adjusted from $2.50 to $0.40. The fair value of the re-priced options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used: dividend yield of 0%; expected volatility of 120%; risk free rate of return of 3.94%; and expected life of 8.7 years. The difference in the weighted average fair value of these options was $0.03 per share.

Outstanding Equity Awards at Fiscal Year-End

The following table provides information about all equity compensation awards held by the named executive officers as of December 31, 2008.

OUTSTANDING EQUITY AWARDS


	Option Awards									Stock Awards

Name	Date of Grant(1)	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)		Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)			Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)

Jason Gonzalez, President and Chief Executive Officer	—	—		—		—		—	—	—		$	—	—		$	—

Jonathan Berman, Vice President-Sales and Marketing	6/1/05	225,000	(2)	—		—	$	0.40	6/5/15	—			—	—			—

W. Geoffrey Martin, General Counsel	6/12/08	—		125,000	(3)	—	$	0.40	6/12/18	—			—	—			—

James (J.D. Gardner) Chief Financial Officer	6/12/08	—		125,000	(4)	—	$	0.40	6/12/18	—			—	—			—

Caroline Gonzalez, Chief In Officer	2/28/07	125,000	(5)	—		—	$	0.40	2/28/17


(1)	Reflects date that options to purchase shares of Visual Management Systems, Inc. were issued or reissued to adjust the exercise price of a previous issuance.

(2)	Mr. Bergman was issued options to acquire 225,000 shares of our common stock having an exercise price of $2.50 per share in exchange for the options to acquire Visual Management Systems Holding, Inc. common stock upon the completion of our acquisition of Visual Management Systems Holding, Inc. On June 12, 2008, the purchase price of Mr. Bergman’s option to purchase 225,000 shares of our common stock was adjusted from $2.50 to $0.40. The fair value of the re-priced options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used: dividend yield of 0%; expected volatility of 120%; risk free rate of return of 3.73%; and expected life of 7 years. The difference in the weighted average fair value of these options was $0.05 per share

(3)	On June 12, 2008, Mr. Martin was granted an option to purchase 125,000 shares of Visual Management Systems, Inc. common stock. Options with respect to 62,500 shares vest on the one year anniversary of the date of grant and options with respect to the remaining 62,500 shares are scheduled to vest on the two year anniversary of the date of grant. The options have a term of ten years and an exercise price of $0.40 per share. The fair value of the options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used: dividend yield of 0%; expected volatility of 120%; risk free rate of return of 4.1%; and expected life of 10 years. The weighted average fair value of these options was $0.38 per share.

(4)	On June 12, 2008, Mr. Gardner was granted an option to purchase 125,000 shares of Visual Management Systems, Inc. common stock. Options with respect to 62,500 shares vest on the one year anniversary of the date of grant and options with respect to the remaining 62,500 shares are scheduled to vest on the two year anniversary of the date of grant. The options have a term of ten years and an exercise price of $0.40 per share. The fair value of the options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used: dividend yield of 0%; expected volatility of 120%; risk free rate of return of 4.1%; and expected life of 10 years. The weighted average fair value of these options was $0.38 per share.

(5)	Ms. Gonzalez was issued options to acquire 125,000 shares of our common stock having an exercise price of $2.50 per share in exchange for the options to acquire Visual Management Systems Holding, Inc. common stock upon the completion of our acquisition of Visual Management Systems Holding, Inc. On June 12, 2008, the purchase price of Ms. Gonzalez’s option to purchase 125,000 shares of our common stock was adjusted from $2.50 to $0.40. The fair value of the re-priced options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used: dividend yield of 0%; expected volatility of 120%; risk free rate of return of 3.94%; and expected life of 8.7 years. The difference in the weighted average fair value of these options was $0.05 per share

Securities Authorized for Issuance under Equity Compensation Plans

We adopted an Equity Incentive Plan in connection with our acquisition of Visual Management Systems Holding, Inc. Following is a summary of the material terms of our Equity Incentive Plan.

The purpose of the plan is to allow our employees, directors and consultants to participate in our growth and to generate an increased incentive for these persons to contribute to our future success and prosperity and to focus on its growth. Employees, directors and consultants are all


eligible to receive awards under the plan. The plan is administered by the Compensation Committee of our Board of Directors. The Compensation Committee is authorized to grant:


	•	Incentive stock options within the meaning of Section 422 of the Internal Revenue Code

	•	Nonqualified stock options

	•	Stock appreciation rights

	•	Restricted stock grants

	•	Deferred stock awards

	•	Other stock based awards to employees of our Company and our subsidiaries and other persons and entities who, in the opinion of the Board of Directors, are in a position to make a significant contribution to the success of our Company and our subsidiaries.


Upon the closing of our acquisition of Visual Management Systems Holding, Inc., we issued options to acquire 1,169,000 shares of our common stock having an exercise price of $2.50 per share in exchange for outstanding options to acquire Visual Management Systems Holding, Inc. common stock. The exercise of the options that we granted was conditioned upon our achieving annual revenues of $5,000,000 or more in a calendar year, which we achieved in 2007. A total of 2,088,126 shares of our common stock have been reserved for issuance under our Equity Incentive Plan.

The Compensation Committee has the power to determine the terms of any awards granted under our Equity Incentive Plan, including the exercise price, the number of shares subject to the award and conditions of exercise. Awards granted under our Equity Incentive Plan are generally not transferable. The exercise price of all incentive stock options granted under our Equity Incentive Plan must be at least equal to the fair market value of the shares of common stock on the date of the grant.

As of December 31, 2008, the number of stock options outstanding under our Equity Incentive Plan, the weighted-average exercise price of outstanding stock options, and the number of securities remaining available for issuance, was as follows:

EQUITY COMPENSATION PLAN TABLE


Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted average exercise price of outstanding options, warrants and rights (b)			Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)

Equity compensation plans approved by security holders	1,225,000	(1)		$	1.02	863,126
Equity compensation plans not approved by security holders	1,242,463	(2)		$	0.50	—

Total	2,467,463			$	0.76	863,126




(1)	Represents options issued under our Equity Incentive Plan.

(2)	Represents warrants issued to placement agents in connection with financing transactions.

Executive Officer Employment Agreements

We are a party to employment agreements with each of our executive officers. Our agreement with Jason Gonzalez provides for base salary of $180,000 per annum, subject to an increase to (i) $200,000 per annum if our monthly gross sales reach $833,334 for three consecutive months, (ii) $250,000 if our monthly gross sales reach $1,666,667 for three consecutive months, and (iii) $300,000 if our monthly gross sales reach $2,000,000 for three consecutive months. If our annual gross sales reach $25,000,000 or more during any calendar year, Mr. Gonzalez’s base salary will be increased to $360,000 per annum and will be subject to annual increases of at least twenty-five percent thereafter or as otherwise determined appropriate by our Board of Directors or the Compensation Committee of the Board. Mr. Gonzalez is entitled to bonus compensation as determined by our Board of Directors. Among other perquisites, Mr. Gonzalez is entitled to a $1,000 per month automobile allowance.

Mr. Gonzalez earned a bonus of $85,000 in 2007 pursuant to his employment agreement as a result of our annual net revenues exceeding $5,000,000. He will be entitled to a $50,000 bonus if annual net revenues exceed $7,500,000 and an additional $50,000 bonus if annual net revenues exceed $10,000,000. Bonus payments are due within ten business days after the applicable net revenue level is exceeded and are structured on a plateau basis. In years subsequent to years during which these revenue levels are exceeded, no revenue based bonuses will be required to be made under the employment agreement.

Mr. Gonzalez’s employment agreement has a two year term which expires in April 2010 and provides for automatic successive one year renewal terms unless either party provides a notice of termination 60 days prior to the expiration of the agreement. If we terminate Mr. Gonzalez for “cause” (as defined in the employment agreement) or if he terminates the agreement without cause he will be prohibited from engaging in a competing business with us for 12 months following the termination. If we terminate Mr. Gonzalez without cause or if he terminates the agreement for cause, he is entitled to a single cash payment in an amount equal to to the greater of Executive’s prior year’s total earnings attributable to the company or one

millions dollars (“$1,000,000”), plus payment of his pro rated bonus compensation and any accrued and payment for any unused vacation for the year of termination, as well as the cost of COBRA and group life insurance benefits for the 18 month period following termination.

Our employment agreement with Caroline Gonzalez provides for an annual base salary of $150,000, subject to an increase to $165,000 if annual gross sales reach $10,000,000 or more, and $181,500 if annual gross sales reach $20,000,000 or more. If our annual gross sales reach $25,000,000 or more, Ms. Gonzalez’s salary will increase to $200,000 per annum and will be subject to annual increases of at least ten percent thereafter or as otherwise determined appropriate by our Board of Directors or the Compensation Committee of the Board. Ms. Gonzalez will be entitled to a $37,500 bonus for the initial instance of annual net revenues exceeding $7,500,000 and another if annual net revenues exceed $10,000,000 (50% of which is payable in cash and 50% of which must be applied to the exercise of options to acquire our Company stock). Each bonus payment is due within ten business days after the applicable net revenue level is exceeded. Ms. Gonzalez earned a $62,500 bonus in 2007. Ms. Gonzalez is entitled to a $600 per month automobile allowance

Ms. Gonzalez’s employment agreement has a two year term which expires in April 2010 and provides for automatic successive one year terms unless either party provides a notice of termination 60 days prior to the expiration of the agreement. The provisions of Ms. Gonzalez’s agreement with respect to termination and severance are substantially similar to the provisions of Mr. Gonzalez’s agreement, except that Ms. Gonzalez is entitled to severance compensation equal to her prior year’s annual salary if we terminate her without Cause or if she terminates the agreement for cause.

Our employment agreement with Jonathan Bergman provides for an annual base salary of $144,000, subject to an increase to $158,400 if annual gross sales reach $10,000,000 or more, and $172,240 if annual gross sales reach $20,000,000 or more. If our annual gross sales reach $25,000,000 or more, their salary will increase to $195,000 per annum and will be subject to annual increases of at least ten percent thereafter or as otherwise determined appropriate by our Board of Directors or the Compensation Committee of the Board. The bonus compensation payable to Mr. Bergman is identical to the bonus payments payable to Ms. Gonzalez under her employment agreement., and Mr. Bergman earned a bonus of $62,500 in 2007. The terms of the employment agreements between our Company and Mr. Bergman with respect to termination and severance compensation are identical to the agreement between Ms. Gonzalez and us. Mr. Bergman is entitled to a $600 per month automobile allowance

Our employment agreement with W. Geoffrey Martin provides for an annual base salary of $120,000. Mr. Martin shall earn cash bonuses of $7,500, $10,000, $15,000 and $25,000 for our achievement of revenues of $7.5 Million, $10 Million, $15 Million and $25 million respectively.

Mr. Martin’s employment agreement has a two year term which expires in March 2010 and provides for automatic successive one year terms unless either party provides a notice of termination 60 days prior to the expiration of the agreement. The provisions of Mr. Martin’s agreement with respect to termination and severance are substantially similar to the provisions of

Mr. Gonzalez’s agreement, except that Mr. Martin is entitled to severance compensation of $10,000 if we terminate him without Cause or if he terminates the agreement for cause.

Our employment agreement with J.D. Gardner provides for an annual base salary of $156,000. Mr. Gardner shall be entitled to receive timeliness bonuses for each of the three quarterly reports on Form 10-Q or its equivalent filed by us with the SEC. In the case of reports on Form 10-Q filed on time without extension Mr. Gardner shall receive $5,000. Mr. Gardner shall also receive timeliness bonuses for each Annual Report on Form 10-K or its equivalent filed by the Company with the SEC. In the case of reports on Form 10-K filed on time without extension, the executive shall receive $5,000. In the case of reports filed on time within any extension period granted to the Company via filing of Form 12B-25 or its equivalent with the SEC, the executive shall receive $3,000. Mr. Gardner may only receive one bonus per SEC filing.

Mr. Gardner’s employment agreement has a two year term which expires in March 2010 and provides for automatic successive one year terms unless either party provides a notice of termination 60 days prior to the expiration of the agreement. The provisions of Mr. Gardner’s agreement with respect to termination and severance are substantially similar to the provisions of Mr. Gonzalez’s agreement, except that Mr. Gardner is entitled to severance compensation of $25,000, $50,000 or ½ his then current salary if we terminate him without Cause or if he terminates the agreement for cause, in the first, second or third years of his contract respectively. Mr. Gardner is entitled to a $600 per month automobile allowance.

Director Compensation

We did not pay any of our directors any cash compensation for serving as directors during 2008. The following table sets forth information with respect to compensation paid to members of our Board for services rendered as directors in 2008.


Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)			Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)

Jason Gonzalez	$ —	$ —	$	—		$ —	$ —	$ —	$	—
Jack Jacobs	$ —	$ —	$	3,100	(1)	$ —	$ —	$ —	$	3,100	(1)
Martin McFeely	$ —	$ —	$	3,100	(1)	$ —	$ —	$ —	$	3,100	(1)
Robert Moe	$ —	$ —	$	3,100	(1)	$ —	$ —	$ —	$	3,100	(1)
Michael Ryan	$ —	$ —	$	3,100	(1)	$ —	$ —	$ —	$	3,100	(1)
Jay Russ	$ —	$ —	$	1,900	(1,2)	$ —	$ —	$ —	$	1,900	(1,2)

(1) Represents compensation expense recorded with respect to the grant of options with respect to 5,000 shares of our common stock made in June 2008 with respect to all the above directors, and of 5,000 shares of our common stock made in December 2008 with respect to all the above directors except Jay Russ. The fair value of the June option issuance option was estimated using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 0%; expected volatility of 120%; risk free rate of return of 4.1 % and expected life of 10 years. The weighted average fair value of this option was $0.38 per share. The fair value of the December option issuance option was estimated using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 0%; expected volatility of 120%; risk free rate of return of 2.5 % and expected life of 10 years. The weighted average fair value of this option was $0.24 per share. Directors are reimbursed for travel expenses incurred in connection with attendance at Board and committee meetings.

(2) Jay Russ resigned from our Board of Directors in December 2008.


Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth information regarding the number of shares of our common stock beneficially owned on April 14, 2008, by each person who we know to beneficially own 5% or more of the 11,098,273 shares of our currently outstanding common stock, each of our directors and executive officers, and all of our directors and executive officers, as a group. Except as indicated in the notes to the table, each of such stockholders maintains a business address at our headquarters at 1000 Industrial Way North, Suite C, Toms River, New Jersey 08755:


Name of Beneficial Owner	No. of Shares		Percentage of Shares Outstanding


Jason Gonzalez	3,401,474	(1)	30.3	%
Caroline Gonzalez	3,401,474	(2)	30.3	%
Michael Ryan	27,500	(3)		(5)
Colonel Jack Jacobs	17,500	(3)		(5)
Robert Moe	17,500	(3)		(5)
Martin McFeely	17,500	(3)		(5)
William Malenbaum	22,388			(5)
Jonathan Bergman	225,000	(3)	1.98	%
J.D. Gardner	—		—
W. Geoffrey Martin	—		—
Enable Growth Partners L.P.	1,231,771	(4)	9.99	%
Enable Opportunity Partners L.P.	1,231,771	(4)	9.99	%
Pierce Diversified Strategy Master Fund, LLC	1,231,771	(4)	9.99	%
Directors and officers as a group (8 persons) (2)(3)	3,728,862		32.6	%




(1) Includes 637,500 shares beneficially owned or subject to immediately exercisable options owned by Mr. Gonzalez’s wife, Caroline Gonzalez. Mr. Gonzalez disclaims beneficial ownership of these shares.

(2) Includes 2,871,474 shares held by Ms. Gonzalez’s husband, Jason Gonzalez and 125,000 shares subject to immediately exercisable options. Ms. Gonzalez disclaims beneficial ownership of the shares owned by Mr. Gonzalez.


(3) Represents shares subject to immediately exercisable options.

(4) Does not include 18,750,000 shares of our common stock acquirable upon the conversion of debentures and exercise of warrants held by the stockholder or its affiliates as described in the paragraph below, all of which are subject to conversion or exercise caps. Pursuant to the terms of the debentures and warrants referred to in the paragraph below, the number of shares of our common stock that may be acquired by the stockholder upon any conversion of the debentures is limited, to the extent necessary, to ensure that following such conversion, the number of shares of our common stock then beneficially owned by the stockholder and any other person or entities whose beneficial ownership of common stock would be aggregated with the stockholder for purposes of the Exchange Act does not exceed 9.99% of the total number of shares of our common stock then outstanding. All of the Warrants held by the stockholder also include similar caps on the stockholder’s right to acquire shares of our common stock upon exercise of such warrants. Accordingly, in light of the beneficial ownership cap, the aforementioned entities are entitled to acquire in the aggregate 766,828 shares of our common stock.

This stockholder and its affiliates hold the following securities: (i) $3,294,000 principal amount original issue discount 5% secured convertible debenture acquired by Enable Growth Partners LP (“EGP”), an affiliate of Enable Opportunity Partners LP (“EOP”) and Pierce Diversified Strategy Master Fund LLC, ena. (“Pierce”), on November 30, 2007, initially convertible into 6,588,000 shares of our common stock; (ii) an immediately exercisable warrant to purchase 9,882,000 shares of our common stock at $.40 per share held by EGP; (iii) $366,000 principal amount original issue discount 5% secured convertible debenture acquired by EOP, an affiliate of EGP and Pierce, on November 30, 2007, initially convertible into 732,000 shares of our common stock; (iv) an immediately exercisable warrant to purchase 1,098,000 shares of our common stock at $.40 per share held by EOP; (v) $90,000 principal amount original issue discount 5% convertible debenture acquired by Pierce, an affiliate of EOP and EGP, on November 30, 2007, initially convertible into 180,000 shares of our common stock; and (vi) an immediately exercisable warrant to purchase 270,000 shares of our common stock at $.40 per share held by Pierce. Brendan O’Neil is the Chief Investment Officer of each of EGP, EOP and Pierce and, as such, has the power to direct the vote and disposition of these shares. Mr. O’Neil disclaims beneficial ownership of these shares.

Each of EGP, EOP and Pierce may be contacted at One Ferry Building Ste. 225, San Francisco, California.

(5) Less than one percent.


Item 13.	Certain Relationships and Related Transactions

Under the terms of our Audit Committee Charter, any proposed transaction between us and a related party is subject to review and approval of the Audit Committee.

Each of Michael Ryan, Col. Jack Jacobs, William Malenbaum and Robert Moe qualifies as an independent director under the standards of the American Stock Exchange. Jason Gonzalez and Marty McFeely are not considered independent under the same standard.


Item 14.	Principal Accounting Fees and Services

The following table sets forth the aggregate fees billed to us by Sobel & Co., LLC, our independent auditors for 2008 and 2007.


	2008		2007
Audit Fees	$	46,300	$	85,611

Audit-Related Fees		42,053		—
Financial Information Systems		—		—
Design and Implementation Fees		—		—
Tax Fees		—		—
All Other Fees		6,647		—

Audit fees represent amounts billed for professional services rendered for the audit of our annual financial statements and the reviews of our financial statements included in our Forms 10-Q and Forms 8-K filed during the year ended December 31, 2008 and 2007 and the registration statement we filed with the Securities and Exchange Commission in December 2007. Before Sobel & Co. LLC was engaged by us to render its audit services, the engagement was approved by the Audit Committee of our Board of Directors.

We did not incur any fees associated with non-audit services to Sobel & Co., LLC relating to the years ended December 31, 2008 and December 31, 2007.


Item 15.	Exhibits, Financial Statement Schedules

Reference is made to the Index of Exhibits beginning on page E-1 herein.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	VISUAL MANAGEMENT SYSTEMS, INC.

Date: April 15, 2009	By:	/s/ Jason Gonzalez

	Name:	Jason Gonzalez
	Title:	Chairman and Chief Executive Officer

KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Jason Gonzalez as his true lawful attorney-in-fact and agent, with full power of substitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Form 10-K, and to file the same, together with all the exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and being requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


Date: April 15, 2009		/s/ Jason Gonzalez

	Name:	Jason Gonzalez
	Title:	President, Chief Executive Officer and Director

Date: April 15, 2009		/s/ J.D. Gardner

	Name:	J.D. Gardner
	Title:	Chief Financial Officer
		(Principal Accounting Officer)


Date: April 15, 2009		/s/ Michael Ryan

	Name:	Michael Ryan
	Title:	Director

Date: April 15, 2009		/s/ Jack Jacobs

	Name:	Jack Jacobs
	Title:	Director

Date: April 15, 2009		/s/ Martin McFeely

	Name:	Martin McFeely
	Title:	Director

Date: April 15, 2009		/s/ Robert Moe

	Name:	Robert Moe
	Title:	Director

Date: April 15, 2009		/s/ William Malenbaum

	Name:	William Malenbaum
	Title:	Director

Visual Management Systems, Inc.

Consolidated Financial Statements

Contents


Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2008 and 2007		F-3
Consolidated Statements of Operations for the Years Ended December 31, 2008 and 2007		F-4
Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2008 and 2007		F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2008 and 2007		F-6
Notes to the Consolidated Financial Statements		F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders
Visual Management Systems, Inc. and Subsidiaries
Toms River, New Jersey

We have audited the accompanying consolidated balance sheets of Visual Management Systems Inc. and Subsidiaries (the “Company”), as of December 31, 2008 and 2007, and the related consolidated statements of operations and changes in stockholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Visual Management Systems, Inc. and Subsidiaries at December 31, 2008 and 2007 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations; the Company has experienced a deficiency of cash from operations and lacks sufficient liquidity to continue its operations. These matters raise substantial doubt as to the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.


		/s/ Sobel & Co., LLC


		Certified Public Accountants
April 15, 2009
Livingston, New Jersey

F-2

Visual Managements Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2008 and 2007


	December 31, 2008			December 31, 2007
Assets

Current assets
Cash	$	16,186		$	707,025
Accounts receivable, net		230,339			296,447
Inventory		340,650			605,724
Prepaid expenses		177,450			23,931

Total current assets		764,625			1,633,127

Property and equipment - net		533,912			682,285
Capitalized software		180,115			—
Deposits and other assets		146,227			102,308
Investment in joint venture		5,000			—
Software-net		912,172			—
Deferred financing costs-net		1,089,322			1,851,091


Total Assets	$	3,631,373		$	4,268,811


Liabilities and Stockholders’ Deficit

Current liabilities
Accounts payable	$	1,708,861		$	780,521
Accrued expenses and other current liabilities		2,312,843			627,445
Customer deposits		195,976			137,160
Sales tax payable		136,745			38,727
Bank line of credit		49,981			49,981
Short term notes payable		756,387			—
Current portion of long-term debt		100,738			347,539
Current portion of obligations under capital leases		110,212			30,700
Current portion of convertible notes payable (net of unamortized discount of $423,333)		4,870,667			208,333


Total current liabilities		10,242,410			2,220,406


Convertible notes payable		—			—
Long-term debt - net of current portion		234,248			2,818,334
Obligations under capital leases - net of current portion		13,500			346,509
Other long term liabilities		54,523			37,179
Commitments and contingencies

Stockholders’ deficit
Preferred stock		—			1
Common stock		10,808			7,379
Additional paid-in-capital		14,205,834			12,030,155
Accumulated deficit		(20,979,950	)		(13,041,152	)
Treasury stock, at cost		(150,000	)		(150,000	)

Total stockholders’ deficit		(6,913,308	)		(1,153,617	)


Total Liabilities and Stockholder’s Deficit	$	3,631,373		$	4,268,811

See report of independent registered public accounting firm and notes to consolidated financial statements

F-3

Visual Managements Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
Year Ended December 31, 2008 and 2007


	2008			2007


Revenues - net	$	6,359,669		$	6,315,622

Cost of revenues		3,550,470			3,392,995


Gross profit		2,809,199			2,922,627

Operating expenses		8,967,246			8,490,554


Loss from operations		(6,158,047	)		(5,567,927	)

Other (income) expenses
Debt conversion expense		—			796,084
Interest expense		1,833,500			3,420,634
Miscellaneous loss (income)		(52,749	)		—

		1,780,751			4,216,718


Net loss	$	(7,938,798	)	$	(9,784,645	)


Deemed dividend on convertible preferred stock	$	—		$	635,582


Net loss applicable to commom stockholders	$	(7,938,798	)	$	(10,420,227	)


Per share data - basic and fully diluted	$	(0.92	)	$	(1.57	)


Weighted average number of common shares outstanding		8,666,715			6,646,751

See report of independent registered public accounting firm and notes to consolidated financial statements

F-4

Visual Managements Systems, Inc. and Subsidiaries
Consolidated Statement of Stockholder’s Equity (Deficiency)


																	Total Stockholders’ Equity (Deficit)
	Preferred Stock				Common Stock				Paid-In Capital		Treasury Stock			Accumulated Deficit
	Shares		Amount		Shares		Amount		Paid-In Capital		Treasury Stock			Accumulated Deficit

January 1, 2006
Balance before merger adjustments					4,000,000		4,000		3,850		$	—		$	(753	)	$	7,097

Issuance of stock-Wildon					5,000,000		5,000		—									5,000
Issuance of stock-Wildon					950,000		950		18,050									19,000
Issuance of stock-Wildon					4,300,000		4,300		81,700									86,000

					14,250,000		14,250		103,600
Reverse split					(12,214,266	)	(12,214	)	12,214									—
Shares retired in connection with merger					(476,429	)	(476	)	476									—

					1,559,305		1,559		116,291

Shares issued in connection with merger					5,218,000		5,218		4,231,218			(150,000	)		(5,283,947	)		(1,197,511	)


Recapitalization in connection with the merger									(117,850	)					753			(117,097	)


	—		—		6,777,305		6,777		4,229,659			(150,000	)		(5,283,947	)		(1,197,511	)

Issuance of common stock for consulting services (Aide)					100,000		100		(100	)								—
Issuance of preferred stock	607		1						621,416									621,417
Issuance costs on preferred stock									(250,148	)								(250,148	)
Issuance of warrrants on preferred stock									894,232									894,232
Issuance of common stock to placement agent					71,600		72		(72	)								—
Deemed dividend on preferred stock									635,582									635,582
																		—
Stock compensation expense-July and August									130,661									130,661
																		—
Net Loss-July and August															(1,841,012	)		(1,841,012	)


August 31, 2007					6,948,905		6,949		6,261,230			(150,000	)		(7,124,959	)		(1,006,779	)

Issuance of common stock for services (Mirador)					100,000		100		389,900									390,000
																		—
Stock compensation expense- September									277,831									277,831
																		—
Net Loss															(880,418	)		(880,418	)


September 30, 2007					7,048,905		7,049		6,928,961			(150,000	)		(8,005,378	)		(1,219,366	)

Issuance of preferred stock	9		—						9,430									9,430
Issuance costs on preferred stock									(2,300	)								(2,300	)
Issuance of warrrants on preferred stock									13,570									13,570
Issuance of common stock for services (Mercom)					30,000		30		61,470									61,500
Issuance of warrants to placement agent of convertible debt									1,588,391									1,588,391
Beneficial conversion feature on convertible debt									3,000,000									3,000,000
Conversion of debt to stock (Magaziner & Moscowitz)	—		—		300,000		300		325,740									326,040
																		—
Stock compensation expense									104,893									104,893
																		—
Net Loss															(5,035,774	)		(5,035,774	)
																		—
																		—
																		—
																		—
	—		—		—		—					—			—			—


December 31, 2007	616		1		7,378,905		7,379		12,030,155			(150,000	)		(13,041,152	)		(1,153,617	)

Stock Compensation Expense									388,499									388,499

Issuance of stock for services					1,400,286		1,399		1,170,159									1,171,559
Stock payment for penalty and interest					359,134		359		299,836									300,195
Liquidated Damages					226,500		227		154,573									154,800
Warrant Exercises					310,952		311		124,611									124,922
Preferred Conversions	(181	)	(1	)	1,132,500		1,133		(1,132	)								(1	)
Issuance of warrants									39,133									39,133
Net Loss															(7,938,798	)		(7,938,798	)


December 31, 2008	435				10,808,277		10,808		14,205,834			(150,000	)		(20,979,950	)		(6,913,308	)

See report of independent registered public accounting firm and notes to consolidated financial statements

F-5

Visual Managements Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Year Ended December 31, 2008 and 2007


	2008			2007

Cash flows from operating activities
Net loss	$	(7,938,798	)	$	(9,784,645	)
Adjustments to reconcile net loss to net cash used by operating activities
Depreciation and amortization		1,100,233			147,961
Revaluation of IDS investment		636,242			—
Non-cash interest expense		430,300			3,347,837
Bad debt expense		64,780			47,917
Accrued Rent Charge		144,869			—
Payment of stock for services		1,051,543			451,500
Stock-based compensation		388,499			980,938
Debt conversion expense		—			796,084
Accrued interest on debt penalty		1,125,000			—
Loss on disposition of assets (net)		249			—
(Increase) decrease in operating assets