Section 1 - Registrant’s Business and Operations

Item 1.01  Entry into a Material Definitive Agreement.

Background.

As previously disclosed, Visualant, Incorporated (the “Company”) was a party to certain Promissory Notes payable to J3E2A2Z, a Washington limited partnership (“J3E2A2Z”). Ronald P. Erickson (“Erickson”), the Company’s Chief Executive Officer and a member of the Board of Directors (the “Board”), has a controlling interest in J3E2A2Z. These Promissory Notes were as follows:

In addition to the aggregate principal amount of $600,000, as of January 31, 2018 there was $34,545 in accrued interest under the March 31, 2014 Note and $29,688 in accrued interest under the July 17, 2014 Note, for a total of $64,233 in accrued interest under the J3E2A2Z Notes. The aggregate amount owed to J3E2A2Z under the J3E2A2Z Notes was therefore $664,233 as of January 31, 2018.

In addition to the J3E2A2Z Notes, at the request of the Company, beginning in July 2014 and through December 2016, J3E2A2Z made advances to the Company totaling $519,833 as of January 31, 2018 (the “J3E2A2Z Account Payable”), which amount was reflected on the Company’s books and records, but which had not been formally documented. No interest has been paid on the J3E2A2Z Account Payable;

Also at the request of the Company, beginning in March 2014 through January 2018 Erickson had accrued unpaid salary totaling $427,500 as of January 31, 2018 (the “Accrued Compensation”), which amount was, and remains, reflected on the Company’s books and records. No interest has been paid on the Accrued Compensation.

Amendments.

Effective March 16, 2018, the Company entered into certain arrangements with Ronald P. Erickson, our Chief Executive Officer and/or entities in which Mr. Erickson has a beneficial interest. These arrangements are summarized below:

The Company entered into a Note and Account Payable Conversion Agreement (the “Conversion Agreement”) pursuant to which (a) all $664,233 currently owing under the J3E2A2Z Notes was converted to a Convertible Redeemable Promissory Note in the principal amount of $664,233 (the “J3E2A2Z Convertible Note”), and (b) all $519,833 of the J3E2A2Z Account Payable was converted into a Convertible Redeemable Promissory Note in the principal amount of $519,833 (the “Account Payable Convertible Note”) together with a warrant to purchase up to 1,039,666 shares of common stock of the Company for a period of five years (the “J3E2A2Z Warrant”). The J3E2A2Z Convertible Note and the Account Payable Convertible Note are referred to in this Report collectively as the “Convertible Notes.”

In addition, effective as of January 31, 2018, Erickson was issued a warrant to purchase up to 855,000 shares of common stock of the Company for a period of five years (the “Erickson Warrant”). The J3E2A2Z Warrant and the Erickson Warrant are referred to herein collectively as the “Warrants”).

The foregoing transactions were approved by the disinterested members of our Board of Directors after full disclosure of Erickson’s potential conflict of interest. As part of its decision-making process, the Board acknowledged that during significant periods of time the financial support of J3E2A2Z and Erickson were imperative to the survival of the Company and deemed the transactions described above to be in the best interest of the Company and its shareholders.

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