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, 2009

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		(I.R.S. Employer Identification No.)
	incorporation or organization)


	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: None

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

Yes o No x

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

Yes o No x

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 has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o		Accelerated filer o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the 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 12, 2010 was approximately $1,417,000.

The number of shares outstanding of the registrant’s Common Stock as of April 13, 2010 was 146,112,526

VISUAL MANAGEMENT SYSTEMS, INC.

INDEX TO FORM 10-K


PART I

Item 1.	Business	1

Item 1(A)	Risk Factors	7

Item 2.	Properties	15

Item 3.	Legal Proceedings	16

PART II

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

Item 6.	Selected Financial Data	17

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 8.	Financial Statements and Supplementary Data	24

Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	25

Item 9A.	Controls and Procedures	25

Item 10.	Directors, Executive Officers and Corporate Governance	27

Item 11.	Executive Compensation	30

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	35

Item 13.	Certain Relationships, Related Transactions and Director Independence	36

Item 14.	Principal Accounting Fees and Services	37

Item 15.	Exhibits, Financial Statement Schedules	37

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., that of a security integrator focusing primarily on video products 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.” Since this purchase the focus of our business has switched from integrating and installing surveillance video systems, to designing and manufacturing surveillance video systems for resale by others, but our original business line persists as a portion of our current business.

In February 2010 our management proposed to our Board of Directors that we change our name from Visual Management Systems, Inc. to Intelligent Product Development Group, Inc. The Board approved the proposal, and we will be submitting the matter to a shareholder vote in the near future.


(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 users 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.

We design, manufacture and sell digital, hybrid and network video recording devices (“DVRs, HVRs and NVRs”) to end-user and

reseller customers. We currently manufacture and sell several lines of products. Our principal lines are the “TrueHybrid” enterprise digital, hybrid and network video recorder, the “Flex TH” plug and play wireless video recorder, and the legacy “Virtual Manager” line of DVRs. We also resell cameras and surveillance system accessories.

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, manufacture and sale of CCTV surveillance systems to resellers. We also sell these surveillance systems and provide installation services directly to end-users. Our surveillance systems enable end-users 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, Hybrid and Network Video Recorders: Our enterprise DVR, NVR and Hybrid product lines are comprised of custom configurations of surveillance hardware and software systems based on our proprietary, wholly owned TrueHybrid Surveillance Platform. These system display from 4—128 different sources depending on hardware configuration. We also continue to resell and service DVRs based on our former principal suppliers product line.

	•	Wireless Video Recorders: Our Flex TH line of plug and play, wireless NVR products are based on a refinement of our proprietary TrueHybrid technology, and are capable of accepting between 2 and 6 channels of wireless IP video, while installation that only involves supplying power to the unit.

	•	Surveillance Cameras: We use a variety of cameras in the traditional video surveillance systems we sell directly to customers, and supply a similar selection of cameras to our dealer and distribution customers when required. Cameras can be either IP or analog, and are configured to serve a multitude of different applications, such as indoor/outdoor, low light/IR, wireless or wired etc. Our Flex TH line uses wireless IP cameras exclusively, which we currently source from a small number of preferred providers.

Digital Video Recorders, Network Video Recorders

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 can cause 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 DVRs and Hybrid Recorders 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 on screen at once. 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

Sales and Marketing

We market and sell our surveillance systems through a small inside sales force, and a larger network of independent dealers and distributors. We are always looking for opportunities with new dealers, and plan to evaluate the market for our products throughout 2010 to determine the best distribution opportunities.

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 gross margin targets calculated to cover parts and manufacturing/other labor, software development costs, and 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.

For our installed systems 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.

For our products resold by dealers or distributors, we warranty and service our enterprise products in a fashion similar to our installed products, and service manufacturers warranties and provide technical support for our self-installed systems.

Suppliers

We acquire the components for our video surveillance systems and DVRs and NVRs through various suppliers, including Ingram Micro, UDP and PurePower. We choose not to align ourselves 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 small to mid-size business market, and the residential market are underserved and plan to exploit opportunities in these sectors.

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 distributor space. We compete primarily on the design, features and reliability of our products and the quality of our service. 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 at a competitive price compared to the professional grade security industry. Our competitors in the installed system space include Vector Security, American Sentry Guard, 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 wireless NVR technology to small business and residential users.

Our near-term future plans include the release of an all new engine for our main product line with markedly superior performance, replacement of our client/server based remote viewer with a web based platform and additional layers of integration with third-party products and services. With the implementation and use of the products and services that we provide there are a 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. Due to a breakdown in the relationship between us and the former management of IDS, we are not currently prosecuting the patent applications and the full value of this investment may never be realized. See “Item 3. Legal Proceedings” and “Item 7. Management’s Discussion and Analysis of Financial Condition 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, and distributors and dealers of various descriptions. Our customers are individuals, private and public companies and government entities. We typically classify customers as corporations, individuals or government as described below.

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:


	•	El Rancho Foods

	•	Briad Group (TGI Friday restaurants)

	•	Penn State University

	•	Clearview Cinemas

	•	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 easy to install wireless cameras will allow us to further penetrate this market. The Flex TH product is in current roll out, and we believe it will provide previously unavailable surveillance options to cost sensitive residential users.

Government

In 2009 we had a limited number of governmental customers. Most were on a smaller scale and represented existing relationships which were leveraged to add new equipment or which required service to maintain existing equipment.

Employees

As of April 14, 2010, we had approximately 20 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 $4,116,683 and $7,938,798 during the years ended December 31, 2009 and 2008, respectively. The losses were attributable, in part, to a substantial decrease in revenue due to the downturn in the larger economy, and the reduction in our sales staff combined with an established overhead cost base which could not be reduced at the same rate that revenues declined and non-cash charges attributable to conversions of debt to equity. There is limited operating and financial information to evaluate our historical performance and our future prospects and our independent registered public accounting firm has modified their opinion on our financial statements for the year ended December 31, 2009 with a note regarding 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 has modified their opinion on our financial statements for the year ended December 31, 2009 with a qualification which raises 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, 2009 were approximately $11.3 million and current assets were approximately $0.2 million. The difference of approximately $11.1 million is a working capital deficit, which is primarily the result of current debt obligations and amounts due vendors. At December 31, 2009, we were delinquent with respect to approximately $3,200,000 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 approximately $7,200,000 At December 31, 2009 we were also delinquent approximately $76,000 in federal payroll taxes, approximately $35,000 in state payroll taxes, approximately $145,000 in state sales taxes and approximately $87,000 in obligations to our employee retirement accounts, exclusive of estimated penalties and interest, which have been accrued. 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 and, 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 2009 we had essentially no access to credit. 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. 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 our limited cash resources.

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

Our future growth rate depends upon a number of factors, including our ability to successfully pursue our new business plan of surveillance software designer and manufacturer. To do this we must 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 products and 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. In 2009 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 issued shares 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 smaller publicly traded companies commencing for fiscal years ending on or after June 15, 2010, 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, 2009, we had 129,262,526 shares of common stock outstanding. As a result of our convertible preferred and convertible debt securities that have not converted at December 31, 2009, up to an additional 241 million shares are issuable upon conversion, and an additional 20,000,000 shares of common stock are issuable at exercise prices between $.005-.013 under outstanding warrants. In August 2009 we entered into a waiver with the holders of our 5% convertible secured debentures adjusting their conversion price from $0.40 per share to $0.10 per share. After January 1, 2010 the conversion price of the debentures is the lesser of $0.10 or 80% of the lowest daily volume weighted average price during the 20 Trading Days immediately prior to the applicable conversion date, but in no case less than $0.00625. 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 at ($12 per square foot per year) of office space expiring in January, 2011. We also maintain a technology facility in Centerville, Ohio that is currently a month to month lease at $520 per month.

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. Jay 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, our 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 are vigorously defending 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.

On January 2, 2010, in response to our motion, the Court in this matter issued an Order dismissing the securities claims in the Complaint on the grounds that the note issued to IDS was not a security. This also invalidated the jurisdiction of the Complaint as no federal subject matter remained, but Plaintiff was granted leave to amend to plead diversity jurisdiction. At the same time the Court ruled on Plaintiff’s motion to attach our and the named individual defendant’s New York assets. The Court denied the attachment of the individual defendant’s assets on the grounds that plaintiffs had not established the required probability of success, but granted the attachment against our assets on the grounds that a judgment on the claims for non-payment was probable. On April 9, 2009, that attachment was issued against our New York assets. It is our position that the attachment of our New York assets is not material to us, because we have no New York assets.

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 approximately $4,000 to $200,000. Only the largest of these individual lawsuits represents a substantial risk to our ongoing operations, but taken in whole they are likely to have a material adverse effect on our financial conditions and results of operations.

We are the Defendant in a lawsuit filed in New Hampshire by PC Connection, our former vendor. The complaint seeks approximately $30,000. The case is pending.

We are the Defendant in a lawsuit filed in California by Northern Video, our former vendor. The complaint seeks approximately $67,000. The case is pending.

We are the Defendant in a lawsuit filed in New Jersey by American Express, our former provider of charge card services. The complaint seeks approximately $80,000. The case is pending.

We are the Defendant in a lawsuit filed in New Jersey by Anixter, our former vendor. The complaint seeks approximately $120,000. The case is pending.

We are the Defendant in a lawsuit filed in New Jersey by CIT, our former provider of credit for the purchase of business management software. The complaint seeks approximately $120,000. The case is pending.

We are the Defendant in a lawsuit filed in New Jersey by ACIC, our former bonding company for government contract work for the East Brunswick, NJ Board of Education, Pleasantville, NJ Public Schools, and Raritan Valley Community College. The complaint seeks approximately $200,000. The case is pending.

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, 2010 was $0.01. As of April 14, 2009, there were approximately 200 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 years ended December 31, 2009 and 2008:


Fiscal Year Ended December 31, 2009	Low		High


First Quarter	$	0.01	$	0.25
Second Quarter	$	0.02	$	0.15
Third Quarter	$	0.06	$	0.12
Fourth Quarter	$	0.02	$	0.07


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

Issuance of Unregistered Equity Securities

Between July and December 2009 we issued an aggregate of $415,546 of 12% Convertible Notes. We relied upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, in connection with such issuances.

We issued an aggregate 61,400 shares of common stock at various times during the year ended December 31, 2009 upon the conversion of an aggregate 19 shares of our Series B Convertible Preferred Stock. In addition, during the year ended December 31, 2009 we issued an aggregate 43,800,000 shares of common stock upon the conversion of 87.6 shares of Series A Preferred Stock and an aggregate 12,650,000 shares of common stock upon the conversion of $126,500 of 12% Convertible Notes. We relied upon the exemption provided by Section 3(a)(9) of the Securities Act of 1933, as amended, in connection with such issuances.


Item 6.	Selected Financial Data

Not applicable, as we are a smaller reporting company


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

Overview

On July 17, 2007, we acquired all of the outstanding capital stock of Visual Management Systems Holding, Inc., a New Jersey corporation, in connection with the merger of our wholly owned subsidiary with and into Visual Management Systems Holding, Inc. In connection with the merger, we changed our corporate name from Wildon Productions, Inc. to Visual Management Systems, Inc. and the former stockholders of Visual Management Systems Holding, Inc. received shares of our common stock representing approximately 76.5% of our outstanding common stock after giving effect to the merger. In addition, our board of directors was reconstituted at the effective time of the

merger with designees of Visual Management Systems Holding, Inc. replacing our then current board of directors. Further, at the effective time of the merger, we abandoned our prior business plan and the operations of Visual Management Systems Holding, Inc. acquired as a result of the merger became our sole line of business. The merger transaction was therefore accounted for as a reverse acquisition with Visual Management Systems Holding, Inc. as the acquiring party and Visual Management Systems, Inc. (formerly Wildon Productions, Inc.) as the acquired party. Accordingly, when we refer to our business and financial information relating to periods prior to the merger, we are referring to the business and financial information of Visual Management Systems Holding, Inc., unless the context otherwise requires. 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 of 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, which has subsequently been adjusted to $0.10 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, 2009 and 2008

Net Revenues

Net revenues decreased approximately 3.8 million, or 60% to approximately $2.6 million during the year ended December 31, 2009 from approximately $6.4 million during the year ended December 31, 2008. The decrease is due to a reduction in our sales and marketing budget and manpower, and a reduced demand for our products and services resulting from the generalized slowdown in the economy.

Cost of Goods Sold

Total cost of goods sold decreased approximately $2.2 million, or 60% to approximately $1.4 million for the year ended December 31, 2009, from approximately $3.6 million during the year ended December 31, 2008. This decrease was primarily due to reduced revenues.

As a result, gross profit for the year ended December 31, 2009 decreased by about $1.6 million from $2.8 million to $1.2 million and gross profit as a percentage of revenue increased from 44.2% to 44.9% for the year ended December 31, 2009, as a result of improved material and labor costs as a percentage of revenue.

Operating Expenses

Operating expenses decreased approximately $5.3 million to $3.7 million for the year ended December 31, 2009, from approximately $9.0 million for the year ended December 31, 2008.

This decrease was primarily attributable to (i) wages and wage related costs decreased by approximately $2 million due to reduced headcount, (ii) investor relations costs decreased by approximately $0.8 million, (iii) other general and administrative costs such as rent, telecom, office and insurance decreased by approximately $0.7 million, (iv) liquidated damages expenses decreased by approximately $0.4 million and stock based compensation decreased by approximately $0.3 million and (v) software amortization as a result of an impairment of approximately $0.6 million in 2008 that did not recur in 2009 and (vii) auto and other expenses decreased by approximately $0.5 million.

Interest Expense

Interest expense for the year ended December 31, 2009 decreased by approximately $0.1 million to approximately $1.7 million, from approximately $1.8 million in the year ended December 31, 2008. The decrease was primarily the result of decreased interest on loans in default of approximately $0.8 million offset by increases due to (i) increased beneficial conversion features on convertible debt (approximately $0.4 million), (ii) increased interest expense due to the repricing of warrants issued to debt holders (approximately $0.2 million) and (iii) increased interest expense due to late payments to vendors and government agencies (approximately $0.1 million).

Income Tax Expense (Benefit)

We recorded a provision for federal, state and local income tax of approximately $5,000 and $4,000 for the years ended December 31, 2009 and 2008, respectively. This amount has been included in operating expenses for 2009 due to its insignificant size.

Net Income (Loss)

As a result of the items discussed above there was a net loss of approximately $4.1 million for the year ended December 31, 2009 compared with a net loss of approximately $7.9 million for the year ended December 31, 2008. In addition we recorded a deemed dividend on the issuance of preferred stock of approximately $5.4 million in 2009, which made the net loss applicable to common stockholders of approximately $9.5 million for the year ended December 31, 2009 as compared to approximately $7.9 million loss for the same period in 2008.

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, 2009, we had cash of $24,884, a working capital deficit of approximately $11.1 million, stockholders’ deficit of approximately $9.7 million, and an outstanding long term portion balance of approximately $0.1 million of debt. In comparison, at December 31, 2008, we had cash and equivalents of $16,186, a working capital deficit of approximately $9.5 million, and an outstanding long term portion balance for other debt of approximately $0.2 million. Our financial condition as of December 31, 2009, raises doubt as to our ability to continue our normal business operations as a going concern. Accordingly, our independent registered public accounting firm has modified their opinion on our financial statements for the year ended December 31, 2009, with a comment which raises substantial doubt about our ability to continue as a going concern.

Cash increased from $16,186 at December 31, 2008 to $24,884 at December 31, 2009, primarily as a result of approximately (i) $470,000 of cash used for operations, (ii) $11,500 of cash proceeds from sale of assets, (iii) repayment of short term notes and a bank line of credit of $34,000, (iv) repayment of $81,370 of long term debt and shareholder loan of $29,600, and (v) capital lease repayments of $7,330. This was offset by (i) proceeds form the sale of convertible preferred stock of approximately $429,190, (ii) proceeds from the issuance of short term convertible notes of $176,350, and (iii) net proceeds from a shareholder loan of $14,410.

Our continuation of existence is dependent upon the continued cooperation of our creditors, our ability to generate sufficient cash flow to meet our continuing obligations on a timely basis and fund our operating and capital needs, and our ability to obtain additional financing or implement other plans as may be necessary. If we are not able to raise additional capital or put into effect certain plans, we may be required to restructure, file for bankruptcy or cease operations.

Commitments and Contingencies.

Chase Loan

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, 2009, $31,651 was outstanding under the loan agreement compared to $37,662 at December 31, 2008.

Chase Line of Credit

We are a party to a $50,000 line of credit with JPMorgan Chase Bank, N.A. which as of December 31, 2009 provided for interest at a rate of 4.75% per annum and which is payable in variable monthly installments. As of December 31, 2009, the outstanding balance on the line of credit was $45,283, which automatically renews every year until paid in full. At December 31, 2008, the outstanding balance was $49,981.

Auto Loans

We had $185,415 in principal balance on auto loans outstanding as of December 31, 2009, as compared to $297,324 at December 31, 2008. These loans, which bear interest at rates ranging from 3.9% to 8.69%, mature at various dates through November 2012.

Capital Leases

We entered into capital leases in the ordinary course of business for office equipment and computer software, and other equipment. The outstanding amount due for leased equipment as of December 31, 2009 was $105,889 as compared to $123,712 at December 31, 2008.

Loan from Former Chief Operating Officer

In 2008 Caroline Gonzalez our former Chief Operating Officer, and the wife of our Chief Executive 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, 2009 the outstanding balance on these accounts was $63,111 as compared to $80,361 at December 31, 2008.

Original Issue Discount Notes

Between April and September 2008, we issued a series of original issue discount notes to individual investors. These 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. $250,000 in total face value of the OID notes was retired via conversion into $229,046 of 12% one-year convertible notes (which included accrued and unpaid interest) and cash payments of $29,500. The remaining $150,000 in total face value of OID notes remain unpaid, and are past due. At December 31, 2008, the face value of these notes was $400,000 and an unamortized discount of $15,167.

November 2007 Debentures

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 initially had 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. None of such payments have been made since August 2008. We have also been required to make monthly principal payments in the aggregate of $208,333 since November 2008. None of such payments have been made. 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 our 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 have otherwise resulted 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.

In August 2009, we entered into an additional Amendment and Waiver Agreement with each of the holders of the debentures pursuant to which:

- Our default for past incidents of non-payment of interest and principal on the debentures was waived.

- The total outstanding principal balance of the debentures was increased from $3,750,000 to $4,083,742, representing the inclusion of accrued interest.

- The conversion price of the debentures was adjusted to $0.10 per share of the Company’s common stock. As of January 1, 2010 the conversion price became the lesser of $0.10 or 80% of the lowest daily volume weighted average price during the 20 Trading Days immediately prior to the applicable Conversion Date, but in no case less than $0.00625.

- The conversion price of warrants issued to the holders of the debentures at the time of their original investment was adjusted to $0.12 per share.

Since entering into this agreement 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 through May 2010, a date upon which the entire principal balance of the debentures will have come due.

Quarterly interest payments owed by us subsequent to the waiver agreement to the holders of the debentures in the amount of approximately $51,000 also have come due and were also not paid by us except for those payments in stock pursuant to a Waiver and Amendment, and a payment in May 2008 of $62,500.

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 approximately $5,300,000 (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 non-payment situation.

IDS Asset Purchase Convertible Note

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 an initial 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, 2009, $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.”

Promissory Note

On June 10, 2008, 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, we 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. We have not paid the holder of the note. IDS, its principal shareholder and the holder of the New Note have instituted an action seeking to collect the past due amount. See “Item 3. Legal Proceedings.”

Recent Financing Activity

Equity Financing

Throughout 2009, we issued 500 shares of Series B Convertible Preferred Stock to accredited investors for an aggregate purchase price of $500,000. We received net proceeds of $429,188 as a result of the offering. Each Series B convertible preferred share bears a stated value of $1,000 and is convertible into shares of our common stock at a rate of $0.005 per share. As part of the offering placement agents received 14,583 shares of our common stock, and warrants to purchase 6,830,000 shares of our common stock at a range of exercise prices from $0.04 to $0.12, with those exercise prices determined by the then market of price of our common stock on the date of closing. As a result of the issuance we accrued a deemed dividend of approximately $500,000.

Debt Financing

We issued a total of $415,546 of 12% Convertible Notes throughout 2009. Each 12% Convertible Note is convertible into shares of our common stock at a rate of $0.01 per share. The issuance of the 12% Convertible Notes took place as follows:


•	between July through December, we issued an aggregate of $106,500 of 12% Convertible Notes to a number of investors. We received net proceeds of $96,350, as a result of the offering. As part of the offering placement agents received warrants to purchase 50,000 shares of our common stock at an exercise price of $0.04, determined by the then market price of our common stock on the date of closing.

•	between August and November 2009, we issued $229,046 of 12% Convertible Notes in exchange for Original Discount Notes previously issued by us in 2008 with aggregate principal plus accrued and unpaid interest of $229,046.

•	during the fourth quarter of 2009, we issued $80,000 of 12% Convertible Notes for investment banking services.


Item 8.	Financial Statements and Supplementary Data

The financial statements 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, 2009.

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, 2009 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, 2009, 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 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

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2009, except that 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 & Company 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	39	President, Chief Executive Office and Director
Michael Ryan	51	Director
Colonel Jack Jacobs	64	Director
Martin McFeely	54	Director
Robert Moe	58	Director
William Malenbaum	81	Director
James (J.D) Gardner	57	Chief Financial Officer
W. Geoffrey Martin	34	Chief Operating Officer & General Counsel
Jonathan Bergman	51	Vice President Marketing and Sales

Jason Gonzalez is our founder and has been involved in the security industry for five years. Prior to launching Visual Management Systems, 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.

W. Geoffrey Martin was hired to serve as our General Counsel in November 2007, and became our Chief Operating Officer in November 2009. 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.

Jonathan Bergman joined Visual Management Systems, 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.

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, 2009 and 2008 of the Chief Executive Officer and each other executive officer whose total annual contracted-for compensation for the year ended December 31, 2009 exceeded $100,000 (the “named executive officers”). No other executive officer’s contracted-for annual salary and bonus for the year ended December 31, 2009 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	2009	$	86,206		—		—		—			—		—		—	$	86,206
	2008	$	123,956		—		—		—			—		—		—	$	123,956





Jonathan Bergman, Vice President- Marketing and Sales	2009	$	83,981		—		—		—			—		—		—	$	83,981
	2008	$	115,845		—		—	$	11,655(2	)		—		—		—	$	127,500





W. Geoffrey Martin, Chief Operating Officer & General Counsel	2009	$	72,033		—		—		—			—		—		—	$	72,033
	2008	$	89,900		—		—	$	47,500 (3	)		—		—		—	$	137,400





James (J.D. Gardner) Chief Financial Officer	2009	$	82,986		—		—		—			—		—		—	$	82,986
	2008	$	65,792		—		—	$	47,500 (4	)		—		—		—	$	113,292


(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 2009 represent the actual amounts paid in compensation to each officer. Salaries accrued but not paid for 2009 are as follows: Mr. Gonzalez $93,793; Mr. Bergman $60,018; Mr. Martin $47,966; and Mr. Gardner $3,577. The sums detailed in the Salary column for 2008 represent the actual amounts paid in compensation to each officer. Salaries accrued but not paid for 2008 are as follows: Mr. Gonzalez $56,793; 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 $1.25 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 4.1%; and expected life of 10 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.

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, 2009.

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	6/12/08	225,000	(2)	—	—		$	0.40	6/12/18		—	—	—	—
W. Geoffrey Martin, General Counsel	6/12/08	62,500	(3)	62,500	—		$	0.40	6/12/18		—	—	—	—
James (J.D. Gardner) Chief Financial Officer	6/12/08	62,500	(3)	62,500	—		$	0.40	6/12/18		—	—	—	—


(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 4.1%; and expected life of 10 years. The difference in the weighted average fair value of these options was $0.05 per share

(3)	On June 5, 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 5, 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 ha\ve 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.

	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.

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. A total of 2,088,126 shares of our common stock have been reserved for issuance under our Equity Incentive Plan.

As of December 31, 2009, 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	1,016,500	(1)	$ 0.60	971,626
Equity compensation plans not approved by security holders	8,122,463	(2)	$0.059	—
Total	9,138,963		$0.119	971,626




	(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

Due to our financial situation affecting the Company, all executive officers have been notified that their current employment agreements

which expired between March and April 2010 have not been extended, and that said officers shall be retained as at-will employees at their current pay and benefit level subject to negotiation of new employment agreements expected to occur before the end of May 2010.

Director Compensation

We did not pay any of our directors any compensation for serving as directors during 2009.


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 13, 2010, by each person who we know to beneficially own 5% or more of the 146,112,526 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	5,401,474	(1)	3.7%
Michael Ryan	8,027,500	(2)	5.5%
Colonel Jack Jacobs	1,017,500	(3)	(5)
Robert Moe	217,500	(3)	(5)
Martin McFeely	217,500	(3)	(5)
William Malenbaum	822,388	(3)	(5)
Jonathan Bergman	1,225,000	(3)	(5)
J.D. Gardner	462,500	(3)	(5)
W. Geoffrey Martin	1,062,500	(3)	(5)
Enable Growth Partners L.P.	14,596,641	(4)	9.99%
Enable Opportunity Partners L.P.	14,596,641	(4)	9.99%
Pierce Diversified Strategy Master Fund, LLC	14,596,641	(4)	9.99%
Directors and officers as a group (8 persons) (2)(3)	18,453,862		12.6%



	(1) Includes 512,500 shares beneficially owned and 125,000 shares subject to immediately exercisable options owned by Mr. Gonzalez’s wife, Caroline Gonzalez. Mr. Gonzalez disclaims beneficial ownership of these shares

	(2) Includes 8,000,000 shares beneficially owned by Mr. Ryan’s wife, Elizabeth May, and 27,500 shares subject to immediately exercisable warrants owned by Mr. Ryan. Mr. Ryan disclaims beneficial ownership of the shares owned by Ms. May.

	(3) Represents shares and shares subject to immediately exercisable options or convertible shares


	of convertible preferred stock owned by the named individual.

	(4) Does not include 650,052,079 shares of our common stock acquirable upon the conversion of debentures (assuming the minimum conversion price) 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 14,596,641 shares of our common stock.

	This stockholder and its affiliates hold the following securities: (i) $3,587,159 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; (ii) an immediately exercisable warrant to purchase 9,882,000 shares of our common stock at $0.12 per share held by EGP; (iii) $398,573 principal amount original issue discount 5% secured convertible debenture acquired by EOP, an affiliate of EGP and Pierce, on November 30, 2007; (iv) an immediately exercisable warrant to purchase 1,098,000 shares of our common stock at $0.12 per share held by EOP; (v) $98,010 principal amount original issue discount 5% convertible debenture acquired by Pierce, an affiliate of EOP and EGP, on November 30, 2007; and (vi) an immediately exercisable warrant to purchase 270,000 shares of our common stock at $0.12 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.

Marty McFeely, a member of our board of directors, is Chief Financial Officer of El Rancho Foods, a customer of ours. For the years ending December 31, 2009 and December 31, 2008 El Rancho Foods accounted for company revenue of $165,149 and $72,145 respectively.

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.

The following table sets forth the details of the purchases of shares of our Series B Convertible Preferred Stock made by our officers and members of our board of directors as part of our 2009 offering.


Name	Purchase Price		Number of Shares

Jason Gonzalez (1)	$	10,000		10
Jonathan Bergman	$	5,000		5
W. Geoffrey Martin	$	5,000		5
J.D. Gardner	$	2,000		2
Michael Ryan (2)	$	40,000		40
William Malenbaum	$	4,000		4
Robert Moe	$	1,000		1
Jack Jacobs	$	5,000		5
Marty McFeely	$	1,000		1


(1)	Includes purchases by Caroline Gonzalez, our former Chief Operating Officer, and the wife of our Chief Executive Officer Jason Gonzalez

(2)	Includes purchases by Elizabeth May, the wife of our director Michael Ryan


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 2009 and 2008.


	2009		2008
Audit Fees	$	65,393	$	80,311
Audit-Related Fees		32,468		48,808
Financial Information Systems		—		—
Design and Implementation Fees		—		—
Tax Fees		—		—
All Other Fees				6,892

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, 2009 and 2008. 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, 2009 and December 31, 2008.


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, 2010	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, 2010			/s/ Jason Gonzalez
	Name:		Jason Gonzalez
	Title:		President, Chief Executive Officer and Director

Date: April 15, 2010			/s/ J.D. Gardner
	Name:		J.D. Gardner
	Title:		Chief Financial Officer
			(Principal Accounting Officer)

Date: April 15, 2010			/s/ Michael Ryan
	Name:		Michael Ryan
	Title:		Director

Date: April 15, 2010			/s/ Jack Jacobs
	Name:		Jack Jacobs
	Title:		Director

Date: April 15, 2010			/s/ Martin McFeely
	Name:		Martin McFeely
	Title:		Director

Date: April 15, 2010			/s/ Robert Moe
	Name:		Robert Moe
	Title:		Director


Date: April 15, 2010		/s/ William Malenbaum
	Name:	William Malenbaum
	Title:	Director

Visual Management Systems, Inc. and Subsidiaries

Consolidated Financial Statements

Contents


Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2009 and 2008	F-3
Consolidated Statements of Operations for the Years Ended December 31, 2009 and 2008	F-4
Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2009 and 2008	F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009 and 2008	F-6
Notes to the Consolidated Financial Statements	F-8

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, 2009 and 2008, and the related consolidated statements of operations and 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, 2009 and 2008 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, 2010
Livingston, New Jersey

F-2

Visual Management Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2009 and 2008


	December 31, 2009			December 31, 2008
Assets

Current assets
Cash	$	24,884		$	16,186
Accounts receivable, net		90,286			230,339
Inventory		46,462			340,650
Prepaid expenses		27,584			177,450
Total current assets		189,216			764,625

Property and equipment - net		192,958			533,912
Capitalized software-net		144,092			180,115
Deposits and other assets		148,431			146,227
Investment in joint venture		—			5,000
Software-net		729,738			912,172
Deferred financing costs-net		322,853			1,089,322

Total Assets	$	1,727,288		$	3,631,373

Liabilities and Stockholders’ Deficit

Current liabilities
Accounts payable	$	1,664,913		$	1,708,861
Accrued expenses and other current liabilities		2,885,414			2,312,843
Customer deposits		68,394			195,976
Sales tax payable		145,159			136,745
Bank line of credit		45,283			49,981
Short term notes payable		504,303			756,387
Convertible notes payable		289,046			—
Current portion of long-term debt		115,321			100,738
Current portion of obligations under capital leases		105,889			110,212
Current portion of convertible notes payable (net of unamortized discount of $123,333 and $423,333)		5,504,409			4,870,667

Total current liabilities		11,328,131			10,242,410

Convertible notes payable		—			—
Long-term debt - net of current portion		101,745			234,248
Obligations under capital leases - net of current portion		—			13,500
Loans payable - stockholders		—			—
Other long term liabilities		—			54,522
Commitments and contingencies

Stockholders’ deficit
Preferred stock		1			1
Common stock		129,264			10,808
Additional paid-in-capital		20,822,226			14,205,834
Accumulated deficit		(30,504,079	)		(20,979,950	)
Treasury stock, at cost		(150,000	)		(150,000	)
Total stockholders’ deficit		(9,702,588	)		(6,913,307	)

Total Liabilities and Stockholder’s Deficit	$	1,727,288		$	3,631,373

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

F-3

Visual Management Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
Year Ended December 31, 2009 and 2008


	2009			2008

Revenues - net	$	2,564,170		$	6,359,669

Cost of revenues		1,411,760			3,550,470

Gross profit		1,152,410			2,809,199

Operating expenses		3,670,677			8,967,246

Loss from operations		(2,518,267	)		(6,158,047	)

Other (income) expenses
Interest expense		1,662,081			1,833,500
Miscellaneous loss (income)		(63,665	)		(52,749	)
		1,598,416			1,780,751

Net loss	$	(4,116,683	)	$	(7,938,798	)

Deemed dividend on convertible preferred		5,407,446			—

Net Loss applicable to common stockholders	$	(9,524,129	)	$	(7,938,798	)

Per share data - basic and fully diluted	$	(0.17	)	$	(0.92	)

Weighted average number of common shares outstanding		57,054,180			8,666,715

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

F-4

Visual Management 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, 2008		616			1			7,378,905		7,379		12,030,155			(150,000	)		(13,041,152	)		(1,153,617	)


Stock payment for penalty and interest								359,134	$	359	$	299,836								$	300,195
Warrant Exercises								310,952		311		124,611									124,922
Issuance of stock for services								1,400,286		1,399		1,170,159									1,171,559
Preferred conversion		(181	)	$	(0	)		1,132,500		1,133		(1,132	)								(0	)
Issuance of warrants												39,133									39,133
Liquidated Damages								226,500		227		154,573									154,800
Stock Based Compensation												388,499									388,499
Net Loss																	$	(7,938,798	)		(7,938,798	)
																					—

December 31, 2008		435			1			10,808,277		10,808		14,205,834			(150,000	)		(20,979,950	)		(6,913,307	)


Issuance of Preferred B		500			1							500,261									500,262
Preferred B closing costs												(37,300	)								(37,300	)
Warrant Exercises								190,166		190		(190	)								—
Stock for services								290,000		290		33,810			—			—			34,100
Stock for placement agent services-Pfd B								14,583		15		(15	)		—			—			—
Issuance of warrants-finders fee for convertible debt												1,892									1,892
Warrant repricing												200,561									200,561
Preferred A Conversion		(88	)		(0	)		43,800,000		43,800		(43,800	)								(0	)
Preferred A Penalty Shares								109,500		110		6,428									6,538
Preferred B conversion		(307	)		(0	)		61,400,000		61,400		(61,400	)								0
Conversions-Convertible Debt								12,650,000		12,651		113,850									126,500
Beneficial conversion feature on convertible notes												415,546									415,546
Deemed dividend-preferred												5,407,446									5,407,446
Stock based compensation												79,303									79,303
Net Loss																		(9,524,129	)		(9,524,129	)


December 31, 2009		540		$	1			129,262,526	$	129,264	$	20,822,226		$	(150,000	)	$	(30,504,079	)	$	(9,702,588	)

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

F-5

Visual Management Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Year Ended December 31, 2009 and 2008


	2009			2008


Cash flows from operating activities
Net loss	$	(4,116,683	)	$	(7,938,798	)
Adjustments to reconcile net loss to net cash used by operating activities
Depreciation and amortization		1,307,429			1,100,233
Revaluation of IDS investment		5,000			636,242
Non-cash interest expense		948,851			430,300
Bad debt expense		68,836			64,780
Accrued rent charge					144,869
Restricted Registration Penalty		6,539			—
Payment of stock for services		34,100			1,051,543
Stock-based compensation		84,303			388,499
Accrued interest on debt penalty					1,125,000
Loss (gain) on disposition of assets (net) (Increase) decrease in operating assets:		(17,571	)		249
Accounts receivable		71,217			1,328
Inventory		294,188			304,064
Prepaid expenses and other assets		149,866			(33,503	)
Deposits and other assets		(2,204	)		(43,920	)
Increase (decrease) in operating liabilities
Accounts payable		(39,174	)		928,340
Accrued expenses and other current liabilities		871,843			864,852
Sales tax payable		8,414			98,018
Customer deposits		(127,582	)		58,816

Net cash used from operating activities		(452,628	)		(819,088	)


Cash flows from investing activities
Purchases of property and equipment		—			(59,394	)
Capitalized software		—			(180,115	)
Proceeds from disposition of assets		11,514			12,145
Investment in joint venture		—			(5,000	)



Net cash used by investing activities		11,514			(232,364	)



Cash flows from financing activities
Repayment of capital leases		(7,330	)		(39,558	)
Repayment of short term notes		(29,500	)		(111,000	)
Proceeds from convertible notes (net of $10,150 of issuance costs)		176,350			—
Interest paid in stock		—
Net change in line of credit		—
Proceeds from long term debt and notes		—
Proceeds from the sale of common stock		—
Proceeds from the exercise of warrants		—			124,922
Proceeds from short term notes payable (net of $0 and $19,550 of issuance costs)		—			414,950
Repurchase of stock into treasury		—
Proceeds from the issuance of preferred stock, net of issuance costs of $33,300		429,188			—
Proceeds from shareholder loan		—
Proceeds from shareholder loan		—			97,420
Repayment on bank line of credit		(4,698	)		—
Principal repayments of long-term debt		(81,370	)		(109,062	)
Repayment of loans payable - stockholders		(32,828	)		(17,059	)

Net cash provided by financing activities		449,812			360,613


Change in cash		8,698			(690,839	)

Cash
Beginning of period		16,186			707,025

End of period	$	24,884		$	16,186

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

F-6


	2009		2008

Supplemental Disclosure of Cash Flow Information

Issuance of a short term note to refinance existing long term note		—		267,192

Issuance of convertible note for IDS Acquisition for acquisition of software assets and net working capital		—		1,544,000

Issuance of note payable for IDS Acquisition		—		42,000

Increase in assets under capitalized leases		—		95,391

Increase in accrued expenses from long term rent deferral		54,523

Increase in accrued interest due to reclass from