**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB**





(Mark
      One)





x
            ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934
                for the fiscal year endedDecember
                31, 2006.





o TRANSITION
      REPORT UNDER
      SECTION 13 OR l5(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition
      period from to .





Commission
      file number  0-7475





**NATURE
      VISION, INC.**


(Name
      of
      small business issuer in its charter)





MINNESOTA
            41-0831186**(State
                or other jurisdiction of incorporation or
                organization)**
            **(I.R.S.
                Employer Identification No.)**1480
                Northern Pacific Road, Brainerd, MN
            56401**(Address
                of principal executive offices)**
            **(Zip
                Code)**





Issuer's
      telephone number ( 218) 825- 0733





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





Securities
      registered under Section l2(g) of the Exchange Act:





Common
      Stock, par value $0.16 per share


(Title
      of
      class)





Check whether the issuer is not required to file reports pursuant to Section
      13
      or l5(d) of the Exchange Act. o





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15 (d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes x No o





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will 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-KSB or any
      amendment to this Form 10-KSB.   o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      l2b-2 of the Exchange Act). Yeso No
x





Issuer’s
      revenues for fiscal year ended December 31, 2006 were $8,993,993.





The aggregate market value of the voting common equity held by non-affiliates
      of
      registrant as of March 28, 2007 was $5,824,755.


1


The
      number of shares outstanding of the registrant’s common stock, par value $0.16
      per share, as of March 28, 2007 was 2,225,387.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





The
      definitive proxy statement for the 2007 Annual Meeting of Shareholders is
      incorporated by reference into Part III of this annual report.





Transitional
      Small Business Disclosure Format (Check one): Yeso No
x


**PART
      I**


**Item
      1.   DESCRIPTION OF BUSINESS.**





**General**





Nature
      Vision, Inc. (“Nature Vision” or the “Company”) designs, manufactures and
      markets outdoor recreation products for the sport fishing and hunting markets
      and other consumer and industrial products.





Nature
      Vision, Inc. was incorporated under the laws of the State of Minnesota in 1959
      and operated under the name “Photo Control Corporation” until August 31, 2004.
      On August 31, 2004, the corporate name was changed to “Nature Vision, Inc.” in
      connection with a merger transaction with Nature Vision Operating Inc. (f/k/a
      Nature Vision, Inc.) Our executive offices are located at 1480 Northern Pacific
      Road, Brainerd, Minnesota 56401; our telephone number is (218)
      825-0733.





Our
      annual report on Form 10-KSB, quarterly reports on Form 10-QSB, current reports
      on Form 8-K and all amendments to such reports filed pursuant to Section 13(a)
      or 15(d) of the Exchange Act are available, free of charge, on or through our
      Internet website located at www.naturevisioninc.com ,
      as soon
      as reasonably practicable after they are filed with or furnished to the
      Securities and Exchange Commission.





**Merger
      Transaction**





On
      August
      31, 2004, PC Acquisition, Inc., a wholly-owned subsidiary of the Company, merged
      with and into Nature Vision Operating Inc. (f/k/a Nature Vision, Inc.), pursuant
      to the terms of a merger agreement and plan of reorganization dated April 15,
      2004. As a result of the merger, Nature Vision Operating Inc. became a
      wholly-owned subsidiary of the Company, and the Company amended its articles
      of
      incorporation to change its corporate name to “Nature Vision, Inc.” from “Photo
      Control Corporation.” The merger received shareholder approval on August 31,
      2004 and closed on that day.





Each
      Nature Vision Operating Inc. shareholder received 0.58137 shares of the
      Company’s common stock for each share of Nature Vision Operating Inc. common
      stock held on the closing date of the merger. Nature Vision Operating Inc.
      shareholders received cash instead of any resulting fraction of a share in
      an
      amount reflecting the market value of the fractional share. After taking into
      account a 1-for-2 reverse stock split of the Company’s common shares that was
      effected immediately after the merger on August 31, 2004, 894,301 common shares
      were issued to former Nature Vision Operating Inc. shareholders.





Each
      outstanding Nature Vision Operating Inc. option and warrant was converted at
      the
      closing of the merger into an option or warrant exercisable for that number
      of
      the registrant’s common shares equal to the product of (a) the number of shares
      of Nature Vision Operating Inc. common stock subject to the option or warrant
      multiplied by (b) 0.58137. The exercise price was adjusted to equal the quotient
      of (x) the current exercise price of the option or warrant divided by (y)
      0.58137.





A
      description of the merger is included in the joint proxy statement/prospectus
      on
      Form S-4 filed with the Securities and Exchange Commission (Commission No.
      333-115593).





**Sale
      of Bookendz Product Line**





On
      October 28, 2005, we completed the sale of our Bookendz product line, related
      patent and remaining inventory. We initially purchased Bookendz docking stations
      for Apple PowerBook and iBook in October of 2000, but decided to sell this
      product line to allow the Photography division to focus on its core products.





**Sale
      of Photo Control Division**





Since
      the
      merger, Nature Vision operated two separate divisions: the Nature Vision
      division and the Photo Control division. The Nature Vision division designed,
      manufactured and marketed outdoor recreation products primarily for the sport
      fishing, hunting and industrial markets. The Photo Control division designed,
      manufactured and marketed professional cameras, electronic flash equipment,
      lens
      shades and related photographic accessories and provided peripheral products
      for
      the videoconferencing and the audiovisual markets. The photography product
      lines
      were marketed under the Norman product line. The videoconferencing and
      audiovisual product lines were marketed under the Vaddio product line. Photo
      Control Corporation acquired the assets comprising the Vaddio product line
      in
      January of 2004.




On
      October 20, 2006, Nature Vision sold its Norman product line to Promark
      International, Inc. Pursuant to the terms of the asset purchase agreement dated
      October 20, 2006, we sold the inventory, equipment, intellectual property and
      certain other assets relating to the Norman product line for a total purchase
      price of approximately $2,400,000, of which $300,000 was payable pursuant to
      the
      terms of a three-year note.





Following
      the sale of our Norman product line, we also consummated the sale of the Vaddio
      product line to New Vad, LLC, under the terms of the asset purchase agreement
      dated as of February 5, 2007. New Vad, LLC is owned in part by former managers
      of Nature Vision’s Photo Control division, including Robin K. Sheeley, who
      served as President of the Photo Control division. The transaction involved
      the
      sale of fixed assets, equipment, licenses, intellectual property and certain
      other assets relating to the Vaddio product line for a total estimated purchase
      price of approximately $1,500,000. As part
      of the sale, the parties also entered into a consignment sale agreement,
      providing for the sale of the inventory related to Vaddio product line to New
      Vad over the subsequent 12 months after the closing at cost for $2,031,359,
      and
      a collection agreement, under which New Vad will collect and transmit to us
      payments made by customers on our accounts receivable for products or services
      sold or provided before the closing date. Under the terms of the consignment
      sale agreement, New Vad also agreed to purchase the consigned inventory from
      us
      as needed before purchasing similar type of item from a third party until the
      inventory is sold in its entirety, or January 31, 2008, at which time the
      remaining inventory will be purchased.





The
      amount of consideration paid for the assets of Vaddio product line was
      determined after an extensive effort to sell the Vaddio product line and the
      final price was the result of arms-length negotiations with New Vad.





The
      sale
      of our Photo Control division was part of our planned strategic move to exit
      from the photography and audiovisual markets and to focus on the long—term
      growth in the outdoor recreation markets. We anticipate the revenues lost in
      the
      sale to be replaced organically through our remaining products, new products
      and
      strategic acquisitions of companies or product lines all within the outdoor
      recreation markets.





**Investment
      Considerations**





Investors
      should consider all of the information contained in this report including the
      factors discussed under Item 1 - Description of Business - Factors That May
      Affect Future Results, Item 6 - Management’s Discussion and Analysis of
      Financial Condition and Results of Operations and Item 7 - Financial Statements,
      before making an investment decision with regard to our securities.





Some
      of
      the statements made in this report in the sections listed above and elsewhere
      in
      this report constitute forward-looking statements within the meaning of the
      Private Securities Litigation Reform Act of 1995. These statements are subject
      to the safe harbor provisions of the reform act. Forward-looking statements
      may
      be identified by the use of the terminology such as may, will, expect,
      anticipate, intend, believe, estimate, should or continue or the negatives
      of
      these terms or other variations on these words or comparable terminology. To
      the
      extent that this report contains forward-looking statements regarding the
      financial condition, operating results, business prospects or any other aspect
      of our business, you should be aware that our actual financial condition,
      operating results and business performance may differ materially from that
      projected or estimated by us in the forward-looking statements. We have
      attempted to identify, in context, some of the factors that we currently believe
      may cause actual future experience and results to differ from their current
      expectations. These differences may be caused by a variety of factors including,
      but not limited to, adverse economic conditions, intense competition, including
      entry of new competitors, inability to obtain sufficient financing to support
      our operations, progress in research and development activities, variations
      in
      costs that are beyond our control, adverse federal, state and local government
      regulation, unexpected costs, lower sales and net income (or higher net losses,
      than forecasted), price increases for equipment, inability to raise prices,
      failure to obtain new customers, the possible fluctuation and volatility of
      our
      operating results and financial condition, inability to carry out marketing
      and
      sales plans, loss of key executives and other specific risks that may be alluded
      to in this report.





**Products**





*Overview*


2


The
      Nature Vision division designs, manufactures and markets outdoor recreation
      products primarily for the sport fishing and hunting markets. We have also
      adapted our outdoor recreation products and core technologies for sale into
      certain industrial markets. Manufacturing of most of these products is
      outsourced to companies located in Asia, where we use approximately six
      suppliers for key components, sub-assemblies and raw materials. We have
      identified but not qualified alternative Asian suppliers. Some final assembly
      is
      undertaken at our Brainerd, Minnesota facility, which also serves as the
      distribution center and corporate headquarters.





Our
      outdoor recreation products have historically been offered to the public by
      traditional sporting goods distribution
      channels. We have continued to focus on significant retailers and large catalog
      houses  to
      offer
      our products as we expand our product categories, including Cabela’s, Bass Pro
      Shops, Gander Mountain, Dick’s Sporting Goods and Mills Fleet Farm. Sales to
      each of Cabela’s, Bass Pro Shops and Gander Mountain accounted for in excess of
      10% of our 2006 and 2005 revenues. In addition, CSI Sports, an
      outdoor products distributor, accounted for greater than 10% of our 2005 revenues. We primarily rely upon
      independent sales representatives to sell our outdoor recreation products to
      retailers. Demand for our outdoor recreation products is seasonal, with the
      majority of sales occurring in the fourth and first calendar
      quarters.





*Underwater
      Viewing Systems*





We
      manufacture, distribute and market a family of products called underwater
      viewing systems that are sold under the trade name “Aqua-Vu.” We are credited as
      the creator of the underwater viewing system product category and were the
      first
      to market a self-contained underwater viewing system. An underwater viewing
      system consists of a submersible video camera with internal lighting and a
      hand
      held monitor-viewing device with a battery power supply. With the use of
      attachable weights and fins, the underwater camera can be lowered into a body
      of
      water and used to look in the direction a boat is traveling. In the past the
      Aqua-Vu systems have relied on cathode ray tube (CRT) display technology which
      required a sunshield to shadow the display. In 2004, we began to market Aqua-Vu
      systems that incorporate a proprietary sunlight viewable liquid crystal display
      (LCD) technology that allows multi-person viewing on color display monitors.
      The
      2004 Aqua-Vu systems also incorporated “on-screen display” information,
      including the water temperature at the camera, camera depth and camera
      direction. In 2005, we expanded the Aqua-Vu systems to include the Scout series
      that offers a 5-inch screen, at a retail price point of $199, Scout XL series
      that offers 7-inch screens, with brightness and contrast controls and the Scout
      SRT series that offers the same 7-inch screen along with on screen display
      of
      water temperature at the camera and our patent-pending Spectral-Response
      lighting system. Another innovative product we introduced in 2005 is our new
      Aqua-Vu Quad 360 Nighthawk. Instead of providing only one-directional view,
      our
      Aqua-Vu Quad 360 Nighthawk offers a split-screen 360 degrees view. In 2006,
      we
      enhanced four-way viewing, introducing the Quad 4x4, which has replaced the
      Nighthawk. The 4x4 incorporates a new monitor case designed around the existing
      7-inch screen and has the ability to select one of the four quadrants to be
      viewed full screen. We also added a digital recording Aqua-Vu DVR line that
      allows anglers to record their underwater discoveries on San DiskTM media cards.
      Aside from recreational viewing, Aqua-Vu DVR allows serious anglers to create
      video logs of their favorite fishing grounds to help them analyze repeatable
      fishing patterns. In 2005 we continued to develop the Aqua-Vu MAV (Motorized
      Aqua-Vu) that allows anglers the ability to fish and view at the same time
      much
      more efficiently. Utilizing foot controls the angler will be able to adjust
      the
      depth of the camera while viewing on a 10.5-inch daylight viewable LCD monitor.
      In 2006 we completed our on the water testing of the MAV and began production
      for sales to begin in 2007.





In
      2006
      we purchased substantially all of the assets of Vector Teknologies, LLC. Vector
      marketed all machined metal downriggers and accessories for controlled depth
      fishing. We began marketing these in Spring 2006 through our channels of
      distribution as the Heavy Metal Series .
      The
      Vector line provides a “trolling products platform” which will include our new
      wireless underwater video viewing system. This wireless product line will
      transmit a video signal and other useful data from the camera to the boat for
      viewing on a large LCD monitor. The wireless technology is scheduled for on
      the
      water testing in 2007. We anticipate new product innovation in the trolling
      products platform extending beyond 2008.





*Hunting
      Products*





We
      also
      sell products for the recreational hunting market. These products include
“Woodland Whisper” hearing enhancers, Digital Deer Scales, Digital Archery
      Scales, Digital Turkey Scales and the Quick Set Chair Blind. The Woodland
      Whisper hearing enhancers aid wild turkey hunters, by detecting distant game
      calls, and deer and elk hunters, by amplifying the sounds of approaching prey.
      Introduced in 2005, the Digital Deer Scale allows hunters to accurately weigh
      their game, up to 300 lbs, and display that weight on a digital read out in
      order to get those all important pictures for the “brag book.” In 2006 we began
      to market the Digital Archery Scale to archery shops and shooters alike. Once
      the scale is hooked on the draw string and pulled, the scale will display the
      draw weight of a bow up to 100 lbs with accuracy +/- .5 lbs. The scale will
      provide the shops and shooters the ability to set up their bows with a high
      degree of accuracy. The Digital Turkey Scale is a National Wild Turkey
      Federation, NWTF, licensed product which we began to market in 2006. The scale
      will allow hunters the ability to calculate their prized gobblers score based
      on
      the NWTF system utilizing weight, beard length and spur length. Also introduced
      in 2006 was the Quick Set Chair Blind, patent pending, featuring Mossy Oak
      licensed fabric. In 2007 we


3


introduced
      the new Quick Sit Low Profile hunting blinds in one and two person units. The
      blinds which fit neatly into an over the shoulder carry bag will allow
      hunters to be very mobile, set up quickly and comfortably disappear into the
      woods.





*Licensed
      Products*





In
      2006
      Nature Vision, in cooperation with In-Fisherman, introduced a new line of
      branded products. New products introduced were soft sided coolers with licensed
      artwork, fillet knives with an instructional fish cleaning DVD and inspirational
      posters and plaques. All products bear the In-Fisherman brand and will be
      marketed through our current and new non-traditional distribution
      channels.





*Ice
      Fishing Products*





In
      2003,
      we introduced a product for the ice fishing market called the “Buzz Stix.” A
      Buzz Stix ice fishing rod incorporates a miniature vibrating motor activated
      with a push button switch. In 2004, Nature Vision expanded the Buzz Stix ice
      fishing rod product line. An automatic jigging rod called the AutoBuzz Stix
      was
      introduced that incorporates a small micro processor and three pre-programmed
      jigging routines. Also introduced, was the Hot Stix ice fishing rod with a
      heated handle.





In
      2005,
      we incorporated our jigging technology into tip-ups, a mechanical device that
      “tips up” a flag signaling the fisherman when a fish is on the line, by creating
      the new Jig-Up. The new Jig-Up combines traditional tip-up design with a battery
      powered motor that “jigs” the bait to entice more strikes. Recognizing the
      burgeoning popularity of glow-in-the-dark ice fishing lures, we also introduced
      the Blazer Stix series of fishing rods that feature a built-in LED light that
      anglers can use to recharge their phosphorescent ice fishing lures. The Blazer
      Stix LED concept was also offered in a clip-on version that attaches to any
      fishing rod, ice or open-water. Rounding out our new ice fishing product line
      in
      2005 are the Genz Stix line of premium ice fishing rods named after Dave Genz,
      a
      nationally recognized ice fishing angler. Dave personally assisted in the design
      and development of these rods.





*Industrial
      Products*





We
      have
      adapted our underwater viewing technology for use in the water well inspection
      industry, offering a line of cameras under the trade name “Well-Vu.” Our Well-Vu
      underwater viewing systems that are submersible to 1,000 feet. In addition,
      we
      sell viewing system products called “Tool-Vu” and “Mini-Vu” for use in
      automotive and building inspections.





**Intellectual
      Property**





Although
      our patents and trademarks are valuable, they are not considered to be essential
      to our company’s success. Innovative application of existing technology along
      with providing efficient and quality products are of primary
      importance.





We
      have
      entered into agreements with employees that grant us the exclusive right to
      use,
      make and sell inventions conceived by our employees during their employment.
      Management believes that the right to use, make and sell such inventions
      adequately protects against any employee who might claim an exclusive
      proprietary right in an invention developed while the employee was employed
      by
      us.





We
      hold
      14 patents and have numerous patent applications pending for products offered
      by
      our outdoor recreation products division. Most patents relate to aspects of
      the
      Aqua-Vu underwater viewing system, including the camera housing. Other patents
      cover our Buzz Stix ice fishing pole, a bird feeder with a built-in video camera
      and transmitter and a hand-held monocular video monitor. Some of the pending
      patents include the MAV, Quick Set Chair Blind, and Game Vu. The patents expire
      during the period 2014 through 2023. There is no guarantee that others may
      not
      copy any of our products in whole or in part to produce a product similar in
      design and purpose. Patent protection of our products does not imply that they
      will recognize any substantial, competitive edge in the
      marketplace.





We
      also
      hold various trademarks relating to our outdoor recreation products, including
      Aqua-Vu, Game-Vu, Tool-Vu, Mini-Vu, Woodland Whisper, Buzz Stix, Hot Stix,
      PIDS,
      RTG and Ice Pro. We consider these trademarks important in assuring consumer
      recognition of our products.





**Competition**





Our
      Aqua-Vu systems compete with underwater cameras sold by several smaller
      companies. We also face competition from manufacturers of sonar and global
      positioning system (GPS) devices. Sonar devices detect schools of fish and,
      at
      times, individual fish, and can provide information about lake and river bottom
      contours. GPS devices allow fishers to “mark”


4


spots
      where fish are located and then easily find them again. Large consumer and
      marine electronics companies as well as established companies offering fishing
      and hunting equipment are sources of potential competition.





**Research
      and Development**





For
      the
      years ended December 31, 2006 and 2005, we spent $166,320 and $72,334,
      respectively, on research activities relating to the development of new outdoor
      recreation products division. We anticipate that spending on research and
      development in 2007 will be comparable as a percentage of net sales to that
      in
      2006.





**Government
      Regulation**





Our
      outdoor recreation and photography products are not subject to significant
      government regulations other than those regulations applicable to businesses
      generally. When they were introduced in 1998, the Aqua-Vu systems were the
      subject of proposed legislation to ban the devices in Minnesota, but the
      legislation was never enacted.





**Employees**





As
      of December 31, 2006, we employed 48 persons, consisting of 47 full-time
      employees and one part-time employee. We also are utilizing the services of
      two
      leased personnel.





**Compliance
      with Environmental Laws**





We
      are in
      compliance with all applicable federal, state and local laws and regulations
      relating to the protection of human health and safety, the environment or
      hazardous or toxic substances or wastes, pollutants or contaminants. Compliance
      with these environmental laws and regulations has had no material effect on
      our
      capital expenditures, earnings or competitive position.





**Management**





Executive
      officers of Nature Vision are as follows:


**Name**
            
            **Age**
            
            **Position**Jeffrey
                P. Zernov
            
            
            
            54
            
            President,
                Chief Executive Officer and a directorMichael
                R. Day
            
            
            
            45
            
            Chief
                Financial Officer and Chief Operating Officer





***Jeffrey
      P. Zernov*** has
      served as our President and Chief Executive Officer and as a director since
      August 31, 2004. Prior to August 31, 2004, Mr. Zernov served in the same
      capacities for Nature Vision Operating, Inc. (f/k/a Nature Vision, Inc.), which
      he founded in 1998. Mr. Zernov also served as Chief Financial Officer of Nature
      Vision Operating, Inc from 1998 through 2002. In 1979, Mr. Zernov founded Zercom
      Corporation, a defense electronics contractor, which he sold to Communication
      Systems Inc. in 1990. Mr. Zernov served as Zercom's Chief Executive Officer
      until 1996 and, in addition, from 1990 though 1996, he established and served
      as
      President of the Zercom Marine division, a designer and manufacturer of sonar
      products for sports fishing applications. Prior to 1979, Mr. Zernov served
      as a
      field promotion specialist with Lindy Tackle and was a co-founder of
      In-Fisherman, a sports fishing publisher and producer of television
      shows.





***Michael
      R. Day*** has
      served as our Chief Financial Officer and Chief Operating Officer since August
      31, 2004. Prior to August 31, 2004, Mr. Day served in the same capacities for
      Nature Vision Operating, Inc. (f/k/a Nature Vision, Inc.). From 1999 through
      2002, Mr. Day served as the Chief Financial Officer of Image Rotational
      Enterprises, Inc., a Brainerd, Minnesota manufacturer of rotational molded
      plastic parts.





**Factors
      That May Affect Future Results**





Factors
      that may affect our future results include, but are not limited to, the
      following items as well as the information in Item 6 - Management’s Discussion
      and Analysis of Financial Condition and Results of Operations.





***We
      may need additional capital in the future.*** While
      we
      believe that we currently have sufficient resources with current cash and our
      current credit facility to conduct business, we may need additional capital
      in
      the future. We may not be able to obtain additional debt or equity financing
      or,
      if we do, it may not be on favorable terms. Sources of additional
      capital


5


may
      include additional bank debt financing or the sale of debt or equity securities,
      the latter of which could result in significant dilution to existing
      shareholders.





***We
      depend on patents and proprietary technology.*** Our
      long-term success may depend on our ability to defend current patents and obtain
      patent protection for future products and processes. We currently have 14 United
      States patents. In addition, we have applied for patent protection on additional
      aspects of our current products. These patent applications may not be granted.
      Even if they are, the scope of any patent protection may be limited, allowing
      for competitive products, or the patents may be held invalid if challenged.
      We
      also rely upon trade secrets, and no assurance can be given that others will
      not
      independently develop or otherwise acquire substantially equivalent know-how
      or
      otherwise gain access to our proprietary technology.





***We
      depend on our key personnel.*** Our
      future success depends to a significant degree upon the continued services
      of
      key technical and senior management personnel including, but not limited to,
      Jeffrey P. Zernov, our Chief Executive Officer and President, as well as our
      ability to attract, retain and motivate highly qualified managerial and
      technical personnel if we expand. Failure to attract and retain skilled
      personnel could hinder our research and development and manufacturing efforts,
      and could limit our ability to expand our product offering or to manage growth.
      The loss of one or more key employees could similarly affect us.





***The
      future growth of our Nature Vision division will depend upon our ability to
      continue to develop new and innovative products and enter new markets.*** A
      significant portion of our outdoor recreation products division’s current
      revenue has been historically dependent upon sales to traditional sporting
      goods
      dealers. In addition to current products, we intend to introduce new products
      for other applications in the outdoor recreation market. Because some of these
      new product categories may be new to us, we may need to develop relationships
      with major participants in this market, which in many cases are different from
      our existing customers. Any new products may not be accepted by the ultimate
      users. Even if they are, we may need to continue to develop relationships with
      significant retailers to penetrate markets and compete against suppliers of
      similar products.





***We
      use Asian-based sources of supply for some of our products.*** We
      currently purchase, and will continue to purchase, finished goods, components
      and raw materials from Asian-based vendors for our outdoor recreation products.
      Although we have identified alternative finished goods manufacturers and
      suppliers for key components, sub-assemblies and raw materials, at the present
      time we use approximately six Asian suppliers. Should a key supplier be
      unwilling or unable to supply components or sub-assemblies in a timely manner
      or
      subject to specifications, or should approval of a current or proposed supplier
      be delayed, withheld or withdrawn, we could experience delays in obtaining
      alternative suppliers, which might result in reduced product output. In
      addition, the price that we pay for these products could increase due to trade
      barriers, tariffs or other trade restrictions imposed by the United States
      or
      changes in international currency rates.





***Government
      regulation banning or restricting the use of underwater video cameras would
      hurt
      our business.*** The
      use
      of the Aqua-Vu underwater viewing system is not regulated by any federal or
      state governmental entity, nor is management aware of any similar restrictions
      in Canada or other foreign countries. In 1998, at the time the product was
      introduced, the Minnesota Senate passed a bill that would have outlawed the
      use
      of underwater video cameras for sport fishing. The Minnesota House of
      Representatives did not act upon the bill, and it was never enacted. If a
      federal, state or foreign governmental entity were to enact legislation banning
      or restricting the use of underwater video cameras, sales of the Aqua-Vu
      underwater viewing system would decline and our business would suffer as a
      result of fewer sales of our flagship product.





***Potential
      competitors could lower our revenues or cause expenses to increase.*** Our
      current competition for the Aqua-Vu underwater viewing system and other products
      consists of several small companies. Potential competitors include large
      consumer and marine electronics companies with broader product lines and better
      name recognition and market acceptance. These companies also have significantly
      greater financial, technical, marketing and other resources. Increased
      competition, especially by these larger, more established potential competitors,
      may result in increased pricing pressure resulting in reduced gross profit
      margins. We may also be forced to increase its spending on marketing, sales
      and
      product development, which would further reduce profits. ******





***We
      may never replace the lost revenue generated by the former Photo Control
      division.*** We
      recently sold our Photo Control division to focus our efforts on the long—term
      growth of our outdoor recreation markets. Although we hope to replace the lost
      revenue previously generated by the Photo Control division by expanding our
      outdoor recreation markets, our growth will significantly depend on this outdoor
      recreational products sector. Unless we successfully develop and market new
      and
      innovative products in the outdoor recreation markets, we may lose market share
      and may never compensate for the lost source of revenue from the former Photo
      Control division.








**Item
      2. DESCRIPTION OF PROPERTY.**


6





In
      late
      2006, Nature Vision moved its operations into a leased 35,600 square
      foot facility located at 1480 Northern Pacific Road, Brainerd, Minnesota which
      houses corporate, accounting, administrative, manufacturing, research and
      development, sales, and customer service departments. Management felt that
      the
      former facility located at 213 NW 4th street did not provided us with sufficient
      space to meet our future growth plan. Accordingly, the Company sold its former
      location in late 2006, and the mortgage securing the former facility was paid
      in
      full.





In
      connection with the sale of the Vaddio product line on February 5, 2007, Nature
      Vision entered in to a lease with New Vad, LLC effective as of February 1,
      2007
      to lease 10,000 square feet of our 55,000 square foot facility located at 4800
      Quebec Avenue North, Minneapolis, Minnesota. Under
      the
      terms of the lease, New Vad will pay to Nature Vision a monthly gross rent
      of
      $10,000. Either party to the lease may terminate the lease at any time upon
      a
      60-day written notice. We anticipate New Vad, LLC to vacate the facility by
      the
      end of the second quarter of 2007.





**Item
      3. LEGAL PROCEEDINGS.**





Not
      applicable.





**Item
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**





Not
      applicable.





**PART
      II**


**Item
      5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
      ISSUER PURCHASES OF EQUITY SECURITIES.**





*Market
      Information.* The
      number of record holders of our common stock on March 26, 2007 was 288. The
      table below sets forth the high and low sale prices for the common stock during
      the two years ended December 31, 2006, and gives effect to the 1-for-2 reverse
      stock split of Nature Vision’s common stock that was effected on August 31,
      2004. The information shown is based on information provided by Yahoo! Inc.
      and
      Nasdaq Stock Market. These quotations represent prices between dealers, and
      do
      not include retail markups, markdowns or commissions, and may not represent
      actual transactions. Our common stock is currently traded on the Nasdaq Capital
      Market under the symbol “NRVN.” Nature Vision did not pay any cash dividends on
      our common stock during the periods presented.





**Common
                Stock****Quarter
                Ended**
            
            **Low**
            
            **High**2005March
                31
            
            
            $
            5.61
            
            
            
            $
            6.97June
                30
            
            
            $
            4.00
            
            
            
            $
            6.30September
                30
            
            
            $
            4.50
            
            
            
            $
            6.54December
                31
            
            
            $
            4.51
            
            
            
            $
            9.102006March
                31
            
            
            $
            8.26
            
            
            
            $
            11.47June
                30
            
            
            $
            8.40
            
            
            
            $
            10.57September
                30
            
            
            $
            8.40
            
            
            
            $
            10.20December
                31
            
            
            $
            5.72
            
            
            
            $
            9.90











*Securities
      Authorized for Issuance Under Equity Compensation Plans.* The
      following table sets forth the securities authorized for issuance under Nature
      Vision’s compensation plans as of December 31, 2006.





**Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights**
            
            **Weighted
                average exercise price of outstanding options, warrants and
                rights**
            
            **Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in
                column (a))**(a)
            
            
            (b)
            
            
            (c)Equity
                compensation plans approved bysecurity
                holders
            
            
            165,456
            
            
            $  3.04
            
            
            103,500Equity
                compensation plans notapproved
                by securities holders
            
            
            25,002
            
            
            $  4.72
            
            
            -Total
            
            
            190,458
            
            
            $ 3.26
            
            
            103,500





**Item
      6.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS**




The
      following discussion and analysis of financial condition, results of operations,
      liquidity and capital resources should be read in conjunction with our audited
      consolidated financial statements and notes thereto appearing elsewhere in
      this
      report. This discussion contains forward-looking statements that involve risks
      and uncertainties, including information with respect to our plans, intentions
      and strategies for our businesses. Our actual results may differ materially
      from
      those estimated or projected in any of these forward-looking statements.




**Company
      History and Overview**




Nature
      Vision, Inc., (f/k/a Photo Control Corporation) (the “Company” or “we”) was
      incorporated as a Minnesota corporation in 1959. On August 31, 2004, the Company
      changed its name to Nature Vision, Inc. in connection with a merger transaction
      with Nature Vision Operating Inc. (f/k/a Nature Vision, Inc.) a Minnesota
      corporation that was incorporated in 1998. As a part of the merger, Nature
      Vision Operating Inc. became a wholly-owned subsidiary of the Company. The
      shares of the combined company trade on the Nasdaq SmallCap Market under the
      symbol, “NRVN.”






The
      Company’s continuing operations are composed of one operating division, the
      Nature Vision Division for outdoor recreation products, located in Brainerd,
      Minnesota. On October 20, 2006, Nature Vision, Inc. sold the Norman product
      line
      of its Photo Control division (Norman) and renamed the division the Vaddio
      Division. On February 5, 2007, the Company sold certain assets and transferred
      certain liabilities related to its Vaddio division (Vaddio). The Norman and
      Vaddio divisions designed, manufactured and marketed professional cameras,
      electronic flash equipment, lens shades and related photographic accessories
      and
      sold audio visual peripheral products used in the video conferencing and
      presentation industry. The Company began discussions and efforts to sell Norman
      and Vaddio in the third and fourth quarter of 2006, respectively. The assets
      and
      liabilities of Vaddio at December 31, 2006 met the requirements of Statement
      of
      Financial Accounting Standards (SFAS) No. 144, "Accounting for Impairment or
      Disposal of Long-Lived Assets" as being held for sale. Operations and cash
      flows
      will be eliminated as a result of the sale and the Company will not have any
      significant involvement in the operations after the sale. In accordance with
      appropriate accounting rules, the Company has reclassified the previously
      reported financial results to exclude the results of the Norman and Vaddio
      operations and have presented on a historical basis these operations as a
      separate line in the consolidated statements of operations and the consolidated
      balance sheets under discontinued operations. All of the financial information
      in the consolidated financial statements and notes to the consolidated financial
      statements has been revised to reflect only the results of continuing operations
      of the Company’s outdoor recreation products.






The
      long-term growth plans for the Company will be in the outdoor recreation
      markets. This growth will be generated organically and through strategic
      acquisitions.




7




**Revenue**




Revenue
      consists of sales of our products net of returns and allowances. Direct revenue
      includes sales from orders to distributors, dealers and direct consumers and
      includes customer service and shipping charges. New product innovation through
      the use of technology will continue to be the basis of our organic growth.
      We
      will look to strategic acquisitions to provide penetration into new product
      categories and channels.




**Cost
      of Goods Sold**




Cost
      of
      goods sold for our products consists of the cost of direct materials, labor
      to
      produce the products, freight in, depreciation, amortization, warehousing,
      associated management, occupancy costs, customer service and warranty, shipping
      and receiving costs, quality assurance and other indirect miscellaneous
      manufacturing costs. Cost of goods sold can fluctuate based on the product
      mix
      sold for a given period. The increased cost of oil continues to drive up the
      cost of components and the freight to receive and ship products. We continue
      to
      evaluate make versus outsource opportunities to reduce these costs. We look
      to
      increase our distribution abilities and capacities.




**Gross
      Profit**




We
      define
      gross profit as the difference between revenue and cost of goods sold. We
      believe our gross profit is our best metric to manage the business on a
      divisional and product line basis.




**Selling,
      General and Administrative Expenses**




Selling,
      general and administrative expenses include directly identifiable operating
      costs and other expenses. The majority of these costs are fairly consistent
      from
      month to month. Selling costs consist of payroll, commissions, product
      management, marketing, advertising and servicing accounts costs. General and
      administrative costs include payroll, product design, product development,
      engineering, order processing costs, management information systems, accounting
      and administrative. General and administrative expenses include costs associated
      with general corporate management and shared departmental services such as
      legal, external accounting, management information systems, finance, insurance
      and human resources. Other costs consist primarily of interest on the existing
      line of credit. The interest rate on the credit facility floats with prime,
      at
      prime plus .75%. As rates have increased over the prior year, these costs have
      continued to rise.




**Income
      from Operations**




Income
      from Operations is defined as revenue less cost of goods sold and selling,
      general and administrative expenses.




**Gain
      (Loss) from Discontinued Operations**




On
      October 20, 2006, Nature Vision, Inc. sold the Norman product line of its Photo
      Control division (Norman) and renamed the division the Vaddio Division. On
      February 5, 2007, the Company sold certain assets and transferred certain
      liabilities related to its Vaddio division (Vaddio). In accordance with
      Statement of Financial Accounting Standards No. 144 , “Accounting for the
      Impairment or Disposal of Long-Lived Assets,” this operating segment was
      classified as discontinued operations and the financial results are reported
      separately as discontinued operations for all periods presented.




**Trends
      and Opportunities**




*Retail
      Expansion by Larger Customers.* Our
      large
      customers, such as Cabela’s, Bass Pro Shops and Gander Mountain continue to
      represent a large concentration of our revenue. Our smaller customers continue
      to reduce in quantity and quality. These new large retail store expansion plans
      will provide significant opportunities for growth at the expense of the smaller
      owner operator establishments. We anticipate the number of customers within
      the
      Outdoor recreation products market to continue to reduce as the average size
      of
      our customer continues to increase. This consolidation puts significant pressure
      on the business with its increased reliance on fewer customers. Failure to
      continue business with an existing customer or even maintain an existing sales
      level with a customer could have a significant impact on earnings.




*Increased
      Inventories* .
      Inventory has increased in comparison to 2005 levels. At the end of 2006, we
      increased our required levels to insure a high rate of order fulfillment. Lower
      than anticipated sales in 2006 were a cause for the increase in




8




inventories.
      We currently have stock in place to fulfill orders and management feels that
      the
      inventory is saleable. We anticipate the ability to reduce the required levels
      in future quarters. Should sales of existing products not achieve forecasted
      levels, a change in product components or customer requirements occur, such
      reductions may not be obtainable.




*Increased
      oil prices.* Increased
      oil prices may affect us more negatively than our competition. If gasoline
      prices should continue to increase, consumers may opt to reduce the amount
      of
      discretionary spending on entertainment items and take fewer vacations.
      Increased oil prices continue to impact the costs of material components. We
      rely on outsourced production and the costs for the associated shipping could
      materially impact the cost of product and gross profit margins.




*Increased
      interest costs.* Given
      the
      cyclical nature of our business we are reliant on a credit facility. As growth
      rates dictate additional borrowing, interest rates have consistently increased
      impacting the costs of financing. If we are unable to maintain favorable
      financing arrangements it will impact the overall profitability of the Company.




*Acquisition
      opportunities* .
      We
      continue to evaluate opportunities for strategic acquisitions. These
      acquisitions are expected to be accretive to earnings. These potential
      acquisitions will require financing which we anticipate we will be able to
      obtain.




*Investment
      in infrastructure.* We
      anticipate that we will continue investing in our infrastructure to support
      our
      new distribution facility. We will also continue to invest in qualified
      employees to support our organic growth with new product
      innovation.




**Results
      of Operations**




The
      following table provides the percentage change in our net sales, gross profit,
      income from operations, and net income for 2006 and 2005.




**(in
                thousands)**
            **2006**
            
            **2005**
            
            **Increase/
                (Decrease)**NET
                SALES
            
            
            $
            8,994
            
            $
            11,663
            
            
            (22.9
            %)GROSS
                PROFIT
            
            
            
            1,936
            
            
            4,119
            
            
            (53.0
            %)INCOME
                (LOSS) FROM OPERATIONS
            
            
            
            (2,132
            )
            
            997
            
            
            n/aNET
                INCOME (LOSS)
            
            
            $
            (1,081
            )
            $
            887
            
            
            n/a




The
      following table presents our gross profit, income from operations and net income
      as a percentage of net sales for 2006 and 2005.




**2006**
            
            **2005**GROSS
                PROFIT
            
            
            
            21.5
            %
            
            35.3
            %INCOME
                (LOSS) FROM OPERATIONS
            
            
            
            (23.7)
            %
            
            8.5
            %NET
                INCOME (LOSS)
            
            
            
            (12.0)
            %
            
            7.6
            %





Decreased
      sales were due to the carryover of unfilled demand from 2004 increasing first
      quarter sales for 2005 to an unusual level. The sales carryover from 2004
      resulted from the demand for new product that was not available prior to
      year-end. This carryover increased the first quarter sales for 2005 and was not
      repeated during the quarter ended March 31, 2006. Additionally, sales of ice
      fishing products and underwater viewing systems for ice fishing were impacted
      by
      a warmer than normal winter. Ice formed early in the Northern reaches of the
      country only to see 40-60 degree daily highs before the end of the 2005-2006
      winter season. Ice never reformed in many of these areas or was unstable at
      best, and never formed at all in other areas. The second and third quarters
      have
      been historically the weakest quarters for the division’s sales **.** The
      sales
      shortfall in the first quarter of 2006 was compounded by a weak fourth
      quarter due to warmer than normal weather




9




and
      unsafe ice fishing conditions. These conditions caused order cancellations
      in
      December and again created an increase in inventory levels. In an attempt to
      increase sales and reduce inventories in the fourth quarter of 2006, the Company
      implemented a rebate program on its Scout camera system. This program was well
      received by consumers and negatively impacted gross profits. Net sales have
      also been disproportionately reduced by returns for the year ended December
      31,
      2006.




Gross
      profits
      for the year were impacted by returns at a run rate similar to the prior year
      which was anticipated. Management anticipates the returns to become more in
      line
      with historical performance in 2007. Gross profits were also impacted by rising
      fuel costs passed along through increased freight costs, both incoming and
      outgoing. Outgoing freight was additionally impacted by the sale of lower cost
      items in similar or larger configurations and quantities, thereby increasing
      the
      cost per unit shipped. The final major impact on gross profits was the move
      to
      our new leased facility for the last four months of the year from our previously
      owned facility. While a planned move, the change is shown in reduced gross
      profits rather than interest and depreciation. This impact will continue into
      2007 as an entire year of lease costs will be incurred.




Inventories
      were ordered in anticipation of a normal ice seasons for 2005-2006 and for
      2006
      - 2007, and resulted in increased inventory levels through out the year 2006
      and
      for the year ended December 31, 2006. Since the beginning of the year, several
      of our larger customers have implemented a focus on reducing inventory levels.
      This factor impacted the Company in two areas, reduced sales and increased
      inventories. We anticipate this trend will continue within the industry, forcing
      suppliers to maintain larger inventories and satisfy orders within shorter
      time
      periods. An additional impact of increased inventories is the reliance upon
      financing to support this, reducing available working capital resources. A
      focus
      on reducing inventory levels has been implemented in order to reduce future
      capital resource requirements. Management anticipates gross product margins
      to
      increase over 2006 levels in future quarters. Product mix and seasonality of
      products can have a substantial impact on the gross profit margin for any given
      period.




In
      2006 the
      Company expanded its Product Development capabilities with the anticipation
      of
      increased sales by providing more quality products to market through a reduced
      development cycle. This expansion did not produce the desired results and has
      been subsequently reduced for 2007. Also in 2006, marketing efforts were
      increased with the anticipation of the above mentioned products being available.
      The cost to remain a public entity continues to increase corporate costs.
      Historically these costs have been spread across a larger revenue base. With
      the
      sale of the Photo Control division, all of these costs will need to be absorbed
      within the continued operations. Additionally, other non-recurring costs
      were incurred in 2006, including costs associated with preparing the
      product lines for sale and bonuses related to a prior incentive plan.
      Consistently increasing interest rates have continued to increase interest
      expense.




**Liquidity
      and Capital Resources**




The
      Company had a cash balance of $2,344 at December 31, 2006 compared to $0 at
      December 31, 2005. The change is a combination of many factors. Cash used in
      operations was $2,315,337 for the year ended December 31, 2006. The components
      of cash used in operations are the following: (i) net loss of $1,081,070 (ii)
      benefit from income taxes of $692,000 (iii) gain on sale of discontinued
      operations and equipment of $261,757 (iv) changes in various operating assets
      and liabilities of approximately $1,211,736, and (v) change in deferred
      retirement benefits of $16,311. These amounts were offset by depreciation and
      amortization of $435,737, accrual relating to the contract payable of $511,800.
      The most significant components relating to the change in various operating
      assets and liabilities relate to the change in accounts receivable of $797,133
      and inventory of $315,356. The majority of the change in the accounts receivable
      is related to increase in the accounts receivable related to the discontinued
      operations. The change in the inventory is a result of lower than anticipated
      sales during the year ended December 31, 2006.




Cash
      provided from investing activities was approximately $1,557,604 for the year
      ended December 31, 2006.




Nature
      Vision Inc. sold the Norman photography product line on October 20, 2006
      pursuant to the terms of an Asset Purchase Agreement. The transaction involved
      the sale of inventory, equipment and certain other assets relating to Nature
      Vision’s Norman photography product line for a total purchase price of
      approximately $2,423,252, of which $300,000 is payable pursuant to the terms
      of
      a three-year note. The gain on the sale was based on carrying amount of
      inventories of $1,979,651, property and equipment net book value of $9,832,
      and
      prepaid expenses of approximately $37,766. Sales proceeds received were cash
      of
      $1,998,252, three year note receivable of $300,000 and a 90-day inventory
      holdback of $125,000. Transaction costs (legal and broker fee) were $142,853.
      The pretax gain on the sale of the business was calculated at $253,150. The
      Company utilized the net proceeds to reduce the line of credit by approximately
      $1,900,000.




In
      addition, the Company received $674,545 in cash proceeds from the sale of
      property and equipment, of which $643,640 relates to the building sold in July
      2006. The Company sold its Brainerd, MN facility on July 14, 2006. Upon the
      sale, the existing mortgage was satisfied. Management negotiated a lease of
      a
      new 35,600 square foot facility. The lease commenced on September 1, 2006 and
      expires August 31, 2016. The monthly base rent increases from $11,718 to $17,800
      over the term of the lease.


10


The
      Company purchased $736,285 of property, equipment, and intangibles during the
      year ended December 31, 2006. In addition, on February 28, 2006, we completed
      a
      purchase of the assets of Vector Teknologies, a small downrigger company located
      in Illinois for $384,074 that consists of $256,932 of fixed assets and $56,420
      of intangibles, and $70,722 of inventory.  Management continues to review
      opportunities for acquisitions in the outdoor recreation marketplace.





Cash
      provided by financing activities was approximately $760,077 for the year ended
      December 31, 2006. This is made up of net advances on the Company’s line of
      credit of $1,670,000 and $301,320 received from the exercise of stock options;
      offset by approximately $905,085 of payments made on long-term debt and contract
      payables and a change of checks issued in excess of cash in bank of
      approximately $306,158.




As
      of
      December 31, 2006 working capital decreased to $4,157,969 from $6,899,783 at
      December 31, 2005.




Nature
      Vision Inc. had a secured line of credit for $5,600,000 at prime plus .75%.
      The
      prime rate at December 31, 2006 was 8.25%. As of December 31, 2006, the Company
      had the ability to borrow against the entire line of credit. The Company has
      replaced the line with a $3,000,000 line of credit that expires on
      April 1, 2008 and has an interest rate of prime plus 1.00%. Management
      anticipates continued advances against the line of credit to fund anticipated
      sales growth in future quarters. The agreement requires the following
      affirmative covenants measured based on December 31 audited results, minimum
      net
      worth of $7,000,000, debt to equity ratio of less than 1.0 to 1.0 and debt
      service ratio of not to exceed 1.2 to 1.0. ****** The
      Company was out of compliance with debt to equity ratio being 1.11 to 1.0 and
      a
      negative debt service ratio. The Company has received a waiver letter from
      its
      credit provider. Management believes short-term liquidity needs of the Company
      will be provided through working capital and the line of credit, and will be
      sufficient to finance operations for a period of at least the next 12
      months. ******





The
      Company signed an agreement in November 2006 to market and sell its Minneapolis,
      MN facility and land. This property relates to the discontinued operations
      of
      the Company. Management anticipates the sale of the property to exceed the
      carrying value as presented on the balance sheet. The Company anticipates
      utilizing the proceeds to reduce any existing debt or assist in funding a future
      acquisition. There is no assurance the Company will be able to sell the
      building.





The
      Company sold its Vaddio product line to New Vad, LLC on February 5, 2007
      pursuant to the terms of the Asset Purchase Agreement. The transaction involved
      the sale of fixed assets, equipment, licenses, intellectual property and certain
      other assets relating to Nature Vision’s Vaddio product line. The original
      purchase price paid by the Buyer was $759,070 which consisted of $710,694 in
      cash at closing and $48,376 in assumed vacation pay. The estimated gain on
      the
      sale of the product line is based on prepaid expenses of $72,167 and equipment
      and intangibles of $181,623. Estimated transaction costs payable (legal and
      broker fee) are projected to be approximately $438,500. The estimated pretax
      gain on the sale of the business unit is calculated at approximately $66,780.
      The Company utilized the net proceeds to pay down the contract payable liability
      that was retained by the Company in the sale and to reduce the line of credit.
      In connection with the asset purchase agreement, Nature Vision will receive
      2%
      of receipts from the gross sale of all Vaddio products sold by New Vad after
      March 1, 2007, paid on a monthly basis with a six month deferral, until a total
      payment of $750,000 is received. The proceeds from these deferred payments
      are
      not included in the above mentioned pretax gain. As part of the transaction,
      the
      parties also entered into a Consignment Sale Agreement, providing for the sale
      of Nature Vision’s inventory to New Vad LLC over the next 12 months at a book
      value estimated to be $2,031,359. Under the terms of the Consignment Sale
      Agreement, New Vad LLC will purchase the consigned inventory from Nature Vision,
      Inc. as needed before purchasing a similar type of item from a third party
      until
      the inventory is sold in its entirety, or January 31, 2008, at which time the
      remaining inventory will be purchased. In addition, the parties entered into
      a
      Collection Agreement, under which New Vad LLC will collect and transmit to
      Nature Vision, Inc. payments made by customers on Nature Vision’s accounts
      receivable for products or services sold or provided before the closing date.
      Any remaining balances due on June 5, 2007 will be remitted by New Vad LLC
      to
      Nature Vision, Inc.




It
      is
      management’s belief that it will fund any potential acquisitions through
      additional financing and the potential issuance of common stock. Management
      believes that any additional long-term debt requirements and additional lines
      of
      credit will be available. There is no assurance the Company will be able to
      obtain the necessary financing if needed.




It
      is
      management’s belief that long-term liquidity needs for the foreseeable future
      will be provided by working capital, and the expectation that the current line
      of credit will be renewed and any additional long-term debt requirements will
      be
      available.




The
      Company believes that the effect of inflation has not been material during
      the
      year ended December 31, 2006.






11








**Off-Balance
      Sheet Financing Arrangements**




As
      of
      December 31, 2006, there were no off-balance sheet arrangements, unconsolidated
      subsidiaries and commitments or guaranties of other parties.




**Critical
      Accounting Policies**




Management’s
      estimate of the warranty reserve is based on historical company data and
      management’s best estimate. We evaluated the key factors and assumptions used to
      develop the warranty reserve in determining that it is reasonable in relation
      to
      the consolidated financial statements taken as a whole.




The
      Company recognizes revenue when products are shipped and the customer takes
      ownership and assumes risk of loss, collection of the relevant receivable is
      probable, persuasive evidence of an arrangement exists and the sales price
      is
      fixed or determinable.  The Company’s revenue recognition policy is in
      accordance with SEC Staff Accounting Bulletin, No. 104.




Management
      records a reserve on accounts receivable which is an estimate of the amount
      of
      accounts receivable that are uncollectible. The reserve is based on a
      combination of specific customer knowledge, general economic conditions and
      historical trends. Management believes the results could be materially different
      if economic conditions change for our customers.




The
      carrying value of long-lived assets is periodically assessed to insure their
      carrying value does not exceed their estimated net realizable future value.
      This
      assessment includes certain assumptions related to future needs for the asset
      to
      help generate future cash flow. Changes in those assessments, future economic
      conditions or technological changes could have a material adverse impact of
      the
      carrying value of these assets.




The
      inventory reserve is an estimate of the future net realizable value of our
      inventory. It is based on historical trends, product life cycles, forecast
      of
      future inventory needs and on-hand inventory levels. Management believes reserve
      levels could be materially affected by changes in technology, our customer
      base,
      customer needs, general economic conditions and the success of certain Company
      sales programs.




Realization
      of deferred tax assets is dependent upon the generation of future taxable income
      during the periods in which those temporary differences become deductible.
      Management considers the scheduled reversal of deferred tax liabilities and
      projected future taxable income in making this assessment. Actual future
      operating results, as well as changes in future performance, could have a
      material adverse impact on the valuation reserves.




**Recent
      Accounting Pronouncements**




See
      Note
      1 to our Consolidated Financial Statements for a discussion of new accounting
      standards.





**Item
      7.   FINANCIAL STATEMENTS.**





See
      Financial Statements beginning on page F-1.


12


**Item
      8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND FINANCIAL DISCLOSURE.**





Not
      applicable.





**Item
      8A.   CONTROLS AND PROCEDURES.**





Our
      Chief
      Executive Officer, Jeffrey P. Zernov, and our Chief Financial Officer, Michael
      R. Day, have reviewed our disclosure controls and procedures (as defined in
      Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the
      period covered by this report. Based upon this review, Messrs. Zernov and Day
      believe that our disclosure controls and procedures are effective in ensuring
      that material information related to Nature Vision is made known to them by
      others within Nature Vision.





There
      have been no significant changes in internal control over financial reporting
      (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that
      occurred during the fiscal period covered by this report that have materially
      affected, or are reasonably likely to materially affect, Nature Vision’s
      internal control over financial reporting.










**PART
      III**


**Item
      9.   DIRECTORS AND EXECUTIVE OFFICERS OF THE
      REGISTRANT.**





Incorporated
      by reference from Nature Vision’s definitive proxy statement for the 2007 Annual
      Meeting of Shareholders.





**Item
      10.   EXECUTIVE COMPENSATION.**





Incorporated
      by reference from Nature Vision’s definitive proxy statement for the 2007 Annual
      Meeting of Shareholders.





**Item
      11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT AND RELATED STOCKHOLDER MATTERS.**





Incorporated
      by reference from Nature Vision’s definitive proxy statement for the 2007 Annual
      Meeting of Shareholders.





**Item
      12.   CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS.**





Incorporated
      by reference from Nature Vision’s definitive proxy statement for the 2007 Annual
      Meeting of Shareholders.





**Item
      13.   EXHIBITS.**





For
      a list of Exhibits filed as a part of this report, see Exhibit Index page
      following the signature page to this annual report on Form 10-KSB.





**Item
      14.   PRINCIPAL ACCOUNTANT FEES AND
      SERVICES.**





Incorporated
      by reference from Nature Vision’s definitive proxy statement for the 2007 Annual
      Meeting of Shareholders.





13


**SIGNATURES**





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





**Nature
                Vision, Inc.**Date:  March
              30,
              2007
            By:   /s/   Jeffrey
              P.
              ZernovJeffrey P.
              Zernov, Presidentand Chief
              Executive Officer





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.





/s/
      Jeffrey P.
      Zernov                                                                                                            March
      30,
      2007


Jeffrey
      P. Zernov


(President,
      Chief Executive Officer


and
      a
      Director)





/s/
      Michael R.
      Day                                                                                        March
      30,
      2007


Michael
      R. Day


(Chief
      Financial Officer, Chief Accounting Officer


and
      Chief
      Operating Officer)





/s/
      Richard P.
      Kiphart                                                                                     March
      30, 2007


Richard
      P. Kiphart


(Director)





/s/
      Steve
      Shanesy                                                                                               March
      30, 2007


Steve
      Shanesy


(Director)





/s/
      Scott S.
      Meyers                                                                                                                                                         
      March 30, 2007


Scott
      S.
      Meyers


(Director)





/s/
      Curtis A.
      Sampson                                                                                                                                                  
        March 30, 2007


Curtis
      A.
      Sampson


(Director)





/s/
      Philip M.
      McLaughlin                                                                                                                                                                                                                                              
   March 30, 2007


Philip
      M.
      McLaughlin


(Director)














14





**Exhibit
      Index**





2.1 Merger
      agreement and plan of reorganization dated April 15, 2004, by and among
      Nature Vision, Inc. (n/k/a Nature Vision Operating Inc.), Photo Control
      Corporation (n/k/a Nature Vision, Inc.), PC Acquisition, Inc.,
      Jeffrey P.   Zernov (as shareholders’ representative) and certain
      Nature Vision, Inc. (n/k/a Nature Vision Operating Inc.) shareholders
      (previously filed as Exhibit 10.2 to the Registrant’s Quarterly Report on
      Form 10-QSB for the period ended March 31, 2004).





3.1     
      Amended and restated articles of incorporation (previously filed as
      Exhibit 3.1 to the Registrant’s Report on Form 8-K dated
      September 7, 2004).





3.2 Amended
      and restated bylaws (previously filed as Exhibit 3.2 to the Registrant’s
      Report on Form 8-K dated September 7, 2004).





10.1    Amended
      and restated retention agreement with Curtis R. Jackels (previously filed as
      Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-QSB for the period
      ended March 31, 2004).





10.2    Amended
      and Restated 2004 Stock Incentive Plan, dated June 3, 2004 (previously filed
      as
      Exhibit 10.1 to Registrant's Form 10-QSB Registration for the period ended
      June
      30, 2005).





10.3    Executive
      salary continuation plan adopted August 9, 1985, including exhibits (previously
      filed as Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the
      year ended June 30, 1986).





10.4    1983
      Stock Option Plan (previously filed as Exhibit 10.4 to the Registrant’s Annual
      Report on Form 10-K for the fiscal year ended June 30, 1989).





10.5    Form
      of
      stock option agreement under the 1983 Stock Option Plan (previously filed as
      Exhibit 5 to the Registrant’s Registration Statement on Form S-8, Commission
      File No. 2-85849).





10.6    Form
      of
      Nonstatutory Option Agreement under the 2004 Stock Incentive Plan and Form
      of
      First Amendment thereto (previously filed as Exhibit 10.6 to the Registrant’s
      Annual Report on Form 10-KSB for the fiscal year ended December 31,
      2005).





10.7   
      Incentive Stock Option Agreement for Jeffrey Zernov, dated August 31, 2004
      (previously filed as Exhibit 10.7 to the Registrant’s Annual Report on Form
      10-KSB for the fiscal year ended December 31, 2005).





10.8    Amendment
      to the registrant’s 1983 Stock Option Plan dated August 29, 1994 (previously
      filed as Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K for the
      fiscal year ended December 31, 1994).





10.9    Amendment
      to the registrant’s 1983 Stock Option Plan dated February 23, 1996 (previously
      filed as Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K for the
      fiscal year ended December 31, 1995).





10.10  Amendment
      to the registrant’s 1983 Stock Option Plan dated November 7, 1997 (previously
      filed as Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K for the
      fiscal year ended December 31, 1997).





10.11  Subscription
      and investment representation agreement with Richard P. Kiphart, including
      form
      of irrevocable proxy (previously filed as Exhibit 10.3 to the Registrant’s
      Quarterly Report on Form 10-QSB for the period ended March 31,
      2004).





10.12  Employment
      agreement between Nature Vision, Inc. and Jeff Zernov dated August 31, 2004
      (previously filed as Exhibit 10.1 to the Registrant's Report on Form 8-K dated
      September 7, 2004).





10.13  Asset
      Purchase Agreement, dated October 20, 2006, by and between Promark
      International, Inc. d/b/a Photogenic Professional Lighting and Nature Vision,
      Inc. (previously filed as Exhibit 10.1 to the Registrant’s Report on Form 8-K
      dated October 20, 2006).





10.14  Asset
      Purchase Agreement, dated February 5, 2007, by and between New Vad, LLC and
      Nature Vision, Inc. (previously filed as Exhibit 10.1 to the Registrant’s Report
      on Form 8-K dated February 5, 2007).


15


10.15
      Consignment Sale Agreement, dated February 5, 2007, by and between New Vad,
      LLC
      and Nature Vision, Inc. (previously filed as Exhibit 10.2 to the Registrant’s
      Report on Form 8-K dated February 5, 2007).





10.16
      Collection Agreement, dated February 5, 2007, by and between New Vad, LLC and
      Nature Vision, Inc. (previously filed as Exhibit 10.3 to the Registrant’s Report
      on Form 8-K dated February 5, 2007).





14.1  
      Code of Business Conduct and Ethics (previously filed as Exhibit 14.1 to the
      Registrant’s Annual Report on Form 10-KSB for the fiscal year ended December 31,
      2005).





21.1  
      Subsidiaries (previously filed as Exhibit 21.1 to the Registrant’s Annual Report
      on Form 10-KSB for the fiscal year ended December 31, 2005).





23.1  
      Consent of Independent Registered Public Accounting Firm.





31.1  Certification of Chief Executive Officer.





31.2  
      Certification of Chief Financial Officer.





32.1  
      Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002.








16












REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM











To
      the
      Shareholders, Audit Committee and Board of Directors


Nature
      Vision, Inc.


Brainerd,
      Minnesota








We
      have
      audited the accompanying consolidated balance sheets of Nature Vision, Inc.
      as
      of December 31, 2006 and 2005, and the related consolidated statements of
      operations, shareholders' equity and cash flows for the years then ended. These
      consolidated financial statements are the responsibility of the company's
      management. Our responsibility is to express an opinion on these consolidated
      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
      consolidated 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 audits included consideration
      of
      its 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
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management as well as evaluating the overall consolidated 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 Nature Vision, Inc. as
      of
      December 31, 2006 and 2005 and the results of their operations and their cash
      flows for the years then ended, in conformity with U.S. generally accepted
      accounting principles.







/s/
      Virchow, Krause & Company, LLP







Minneapolis,
      Minnesota


March
      30,
      2007





F-1


**Nature
      Vision, Inc. and Subsidiaries**


**Consolidated
      Balance Sheets**


**December
      31, 2006 and 2005**





**2006**
            
            **2005**ASSETSCURRENT
                ASSETSCash
                and Cash Equivalents
            
            $
            2,344
            
            $
            -Accounts
                Receivable, net
            
            
            2,664,246
            
            
            2,490,386Current
                Portion of Note Receivable
            
            
            100,000
            
            
            -Inventories,
                net
            
            
            4,466,189
            
            
            3,896,894Current
                Portion of Prepaid Expenses
            
            
            390,608
            
            
            281,558Deferred
                Income Taxes
            
            
            -
            
            
            350,000Current
                Assets Sold Relating to Discontinued Operations
            
            
            84,855
            
            
            2,208,991Current
                Assets Retained Relating to Discontinued Operations
            
            
            4,066,480
            
            
            3,525,985Total
                Current Assets
            
            
            11,774,722
            
            
            12,753,814PROPERTY
                AND EQUIPMENT, NET
            
            
            1,695,958
            
            
            1,180,539NON-CURRENT
                ASSETSBuilding
                and Land Held for Sale, Net
            
            
            565,449
            
            
            1,200,001Other
                Assets Sold Relating to Discontinued Operations
            
            
            186,701
            
            
            203,039Cash
                Surrender Value of Life Insurance
            
            
            148,310
            
            
            135,698Note
                Receivable, net of Current Portion
            
            
            200,000
            
            
            -Prepaid
                Expenses, net of Current Portion
            
            
            61,040
            
            
            -Deferred
                Income Taxes
            
            
            1,022,546
            
            
            -Intangibles
                - net
            
            
            91,498
            
            
            40,916Total
                Non-Current Assets
            
            
            2,275,544
            
            
            1,579,654TOTAL
                ASSETS
            
            $
            15,746,224
            
            $
            15,514,007LIABILITIES
                AND STOCKHOLDERS’ EQUITYCURRENT
                LIABILITIESChecks
                Issued in Excess of Cash in Bank
            
            $
            71,394
            
            $
            377,552Current
                Portion of Long-Term Debt
            
            
            -
            
            
            55,649Current
                Portion of Deferred Retirement Benefits
            
            
            72,795
            
            
            71,400Line
                of Credit, Bank
            
            
            3,900,000
            
            
            2,230,000Accounts
                Payable
            
            
            632,398
            
            
            675,491Accrued
                Payroll and Payroll Taxes
            
            
            175,582
            
            
            301,798Accrued
                Expenses
            
            
            840,005
            
            
            551,009Income
                Taxes Payable
            
            
            5,000
            
            
            2,000Current Liabilities Sold Relating to Discontinued
                Operations
            
            
            46,678
            
            
            46,906Current
                Liabilities Retained Relating to Discontinued Operations
            
            
            1,872,901
            
            
            1,542,226Total
                Current Liabilities
            
            
            7,616,753
            
            
            5,854,031LONG-TERM
                LIABILITIESLong-term
                Debt, Net of Current Portion
            
            
            -
            
            
            387,016Deferred
                Retirement Benefits, Net of Current Portion
            
            
            557,871
            
            
            651,725Deferred
                Income Taxes
            
            
            -
            
            
            78,454Long-term
                Liabilities Retained Relating to Discontinued Operations
            
            
            -
            
            
            250,431Total
                Non-Current Liabilities
            
            
            557,871
            
            
            1,367,626Total
                Liabilities
            
            
            8,174,624
            
            
            7,221,657COMMITMENTS
                AND CONTINGENCIESSTOCKHOLDERS’
                EQUITYCommon
                Stock, $.16 Par Value per Share 25,000,000 Shares Authorized Common
                Shares
                Issued and Outstanding at December 31, 2006 were 2,225,387 and December
                31, 2005 were 2,178,887
            
            
            356,062
            
            
            348,620Additional
                Paid-In Capital
            
            
            6,789,287
            
            
            6,436,409Retained
                Earnings
            
            
            426,251
            
            
            1,507,321Total
                Stockholders’ Equity
            
            
            7,571,600
            
            
            8,292,350TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            15,746,224
            
            $
            15,514,007




*See
      accompanying notes to consolidated financial statements.*




F-2




**Nature
      Vision, Inc. and Subsidiaries**


**Consolidated
      Statements of Operations**


**Years
      Ended December 31, 2006 and 2005**




**2006**
            
            **2005**SALES,
                NET
            
            $
            8,993,993
            
            $
            11,663,438COST
                OF GOOD SOLD
            
            
            7,057,603
            
            
            7,544,856GROSS
                PROFIT
            
            
            1,936,390
            
            
            4,118,582SELLING,
                GENERAL AND ADMINISTRATIVE EXPENSES
            
            
            4,068,385
            
            
            3,121,909INCOME
                (LOSS) FROM OPERATIONS
            
            
            (2,131,995
            )
            
            996,673OTHER
                INCOME (EXPENSE)Interest
                Expense
            
            
            (375,072
            )
            
            (141,514
            )Interest
                Income
            
            
            -
            
            
            519Other
                Income (Expense)
            
            
            (95,847
            )
            
            14,010Net
                Other Expenses
            
            
            (470,919
            )
            
            (126,985
            )INCOME
                (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES
            
            
            (2,602,914
            )
            
            869,688PROVISION
                FOR INCOME TAX EXPENSE (BENEFIT)
            
            
            (1,021,000
            )
            
            348,000INCOME
                (LOSS) FROM CONTINUING OPERATIONS
            
            
            (1,581,914
            )
            
            521,688GAIN
                FROM DISCONTINUED OPERATIONS, NET OF TAX OF $334,000 AND
                $237,000
            
            
            500,844
            
            
            365,246NET
                INCOME (LOSS)
            
            $
            (1,081,070
            )
            $
            886,934Income
                (Loss) from Continuing Operations per Common ShareBasic
            
            $
            (0.71
            )
            $
            0.24Diluted
            
            $
            (0.71
            )
            $
            0.23Income
                from Discontinued Operations per Common ShareBasic
            
            $
            0.22
            
            $
            0.17Diluted
            
            $
            0.22
            
            $
            0.16Net
                Income (Loss) per Common ShareBasic
            
            $
            (0.49
            )
            $
            0.41Diluted
            
            $
            (0.49
            )
            $
            0.39Weighted
                Average Common SharesBasic
            
            
            2,215,021
            
            
            2,178,877Diluted
            
            
            2,215,021
            
            
            2,263,746




*See
      accompanying notes to consolidated financial statements.*




F-3




**Nature
      Vision, Inc. and Subsidiaries**


**Consolidated
      Statements of Stockholders’ Equity**


**Years
      Ended December 31, 2006 and 2005**











**Shares**
            
            **Common**
              **Stock**
            
            **Additional
                Paid-In Capital**
            
            **Retained
                Earnings**
            
            **Total**
              **Stockholders’**
              **Equity**Balance,
                December 31, 2004
            2,178,887
            $
            348,620
            $
            6,436,409
            $
            620,387
            $
            7,405,416Net
                Income
            —
            
            —
            
            —
            
            886,934
            
            886,934Balance,
                December 31, 2005
            2,178,887
            
            348,620
            
            6,436,409
            
            1,507,321
            
            8,292,350Exercise
                of Common Stock Options
            46,500
            
            7,442
            
            293,878
            
            —
            
            301,320Tax
                Benefit of Common Stock Option Exercises
            —
            
            —
            
            59,000
            
            —
            
            59,000Net
                Loss
            —
            
            —
            
            —
            
            (1,081,070)
            
            (1,081,070)Balance,
                December 31, 2006
            2,225,387
            $
            356,062
            $
            6,789,287
            $
            426,251
            $
            7,571,600











*See
      accompanying notes to consolidated financial statements.*




F-4




**Nature
      Vision, Inc. and Subsidiaries**


**Consolidated
      Statements of Cash Flows**


**For
      Years Ended December 31, 2006 and 2005**




**2006**
            
            **2005**CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                Income (Loss)
            
            $
            (1,081,070
            )
            $
            886,934Adjustments
                to reconcile net income (loss) to net cash flows from operating
                activitiesDepreciation
                and Amortization
            
            
            435,737
            
            
            347,864Loss
                on Disposal of Property and Equipment
            
            
            14,412
            
            
            -Loss
                (Gain) on Sale of Discontinued Operations
            
            
            (276,169
            )
            
            29,378Provision
                for (Benefit from) Deferred Income Taxes
            
            
            (692,000
            )
            
            566,154Change
                in Deferred Retirement Benefits
            
            
            (16,311
            )
            
            3,482Change
                in Contract Payable
            
            
            511,800
            
            
            -Change
                in Bad Debt Reserve
            
            
            -
            
            
            (6,000
            )Changes
                in Operating Assets and LiabilitiesAccounts
                Receivable
            
            
            (797,133
            )
            
            (944,656
            )Income
                Taxes Receivable
            
            
            -
            
            
            89,800Inventories,
                net
            
            
            (315,356
            )
            
            (3,314,150
            )Inventories
                held for Sale
            
            
            -
            
            
            226,237Prepaid
                Expenses
            
            
            (163,810
            )
            
            (99,608
            )Other
                Non-current Assets
            
            
            (12,612
            )
            
            (9,158
            )Accounts
                Payable
            
            
            143,749
            
            
            371,630Income
                Taxes Payable
            
            
            3,000
            
            
            2,000Accrued
                Payroll and Payroll Taxes
            
            
            (181,080
            )
            
            254,571Accrued
                Expenses
            
            
            187,654
            
            
            242,346Payments
                on Deferred Retirement Benefits
            
            
            (76,148
            )
            
            (121,835
            )Net
                Cash Flows from Operating Activities
            
            
            (2,315,337
            )
            
            (1,475,011
            )CASH
                FLOWS FROM INVESTING ACTIVITIESPurchases
                of Property and Equipment
            
            
            (719,711
            )
            
            (765,166
            )Purchase
                of Vector Teknologies Assets
            
            
            (384,074
            )
            
            -Proceeds
                from Sale of Property and Equipment
            
            
            30,905
            
            
            1,200Proceeds
                from Sale of Building and Land Held for Sale
            
            
            643,640
            
            
            -Proceeds
                from Sale of Discontinued Operations
            
            
            2,003,418
            
            
            154,424Purchases
                of Intangibles
            
            
            (16,574
            )
            
            (8,675
            )Net
                Cash Flows from Investing Activities
            
            
            1,557,604
            
            
            (618,217
            )CASH
                FLOWS FROM FINANCING ACTIVITIESIncrease
                (Decrease) in checks issued in excess of Cash in Bank
            
            
            (306,158
            )
            
            287,425Net
                Advances from Line of Credit, Bank
            
            
            1,670,000
            
            
            1,990,000Principal
                Payments on Long-term Debt
            
            
            (442,665
            )
            
            (38,620
            )Payments
                on Contract Payable
            
            
            (462,420
            )
            
            (187,149
            )Cash
                Received on Exercise of Options
            
            
            301,320
            
            
            -Net
                Cash Flows from Financing Activities
            
            
            760,077
            
            
            2,051,656Net
                Change in Cash and Cash Equivalents
            
            
            2,344
            
            
            (41,572
            )CASH
                AND CASH EQUIVALENTS - January 1, 2006 and 2005
            
            
            -
            
            
            41,572CASH
                AND CASH EQUIVALENTS - December 31, 2006 and 2005
            
            $
            2,344
            
            $
            -




*See
      accompanying notes to consolidated financial statements.*




F-5




NATURE
      VISION, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


December
      31, 2006 and 2005






NOTE
      1 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




NATURE
      OF
      OPERATIONS




On
      August
      31, 2004, the Company changed its name from Photo Control Corporation to Nature
      Vision, Inc. in connection with a reverse merger transaction with Nature Vision
      Operating, Inc. (f/k/a, Nature Vision, Inc.), a Minnesota corporation that
      was
      incorporated in 1998. As part of the merger transaction, Nature Vision
      Operating, Inc. became a wholly owned subsidiary of the Company. The merger
      transaction has been accounted for as a reverse merger.




Nature
      Vision, Inc. (the Company) is an outdoor recreation products Company. On October
      20, 2006, Nature Vision, Inc. sold the Norman product line (Norman) of its
      Photo
      Control division and renamed the division the Vaddio Division. On February
      5,
      2007, the Company sold certain assets and transferred certain liabilities
      related to its Vaddio division (Vaddio). The Norman and Vaddio divisions
      designed, manufactured and marketed professional cameras, electronic flash
      equipment, lens shades and related photographic accessories and sold products
      used in the video conferencing and presentation industry. The Company began
      discussions and efforts to sell Norman and Vaddio in the third and fourth
      quarter of 2006, respectively. See Note 12 for additional information related
      to
      the sale of the Norman and Vaddio operations, respectively. The assets and
      liabilities of Vaddio at December 31, 2006 met the requirements of Statement
      of
      Financial Accounting Standards (SFAS) No. 144, "Accounting for Impairment or
      Disposal of Long-Lived Assets" as being held for sale. Operations and cash
      flows
      will be eliminated as a result of the sale and the Company will not have any
      significant involvement in the operations after the sale. In accordance with
      appropriate accounting rules, the Company has reclassified the previously
      reported financial results to exclude the results of the Norman and Vaddio
      operations and have presented on a historical basis these operations as a
      separate line in the consolidated statements of operations and the consolidated
      balance sheets under discontinued operations. All of the financial information
      in the consolidated financial statements and notes to the consolidated financial
      statements has been revised to reflect only the results of continuing operations
      of the Company’s outdoor recreation products. As a result of the sale of the
      Vaddio and Norman divisions, the Company has only one segment.




Nature
      Vision, Inc. (Nature Vision) designs and markets video viewing systems for
      the
      sport fishing market and other video based consumer and industrial products.
      The
      Company grants unsecured credit to its customers which are primarily dealers
      and
      consumers located throughout the United States and Canada. The Company contracts
      with outside organizations for the manufacture and sale of its products. The
      geographic market in which the Company competes consists of the entire United
      States and, to a lesser extent some foreign countries.




PRINCIPLES
      OF CONSOLIDATION




The
      consolidated financial statements include the accounts of the Company and its
      wholly-owned subsidiary. All significant inter-company transactions and balances
      have been eliminated in consolidation.




FINANCIAL
      INSTRUMENTS




The
      carrying amounts for all financial instruments approximate fair value. The
      carrying amounts for cash and cash equivalents, accounts receivable, accounts
      payable and accrued expenses approximate fair value because of the short
      maturity of these instruments. The fair value of long-term debt, line of
      credit-bank, contract payable and deferred liabilities - retirement benefits
      approximates the carrying amounts based upon the Company’s expected borrowing
      rate for debt with similar remaining maturities and comparable
      risk.




CASH
      AND
      CASH EQUIVALENTS




The
      Company maintains its cash balances in various area banks. Cash balances are
      insured up to $100,000 per bank by the FDIC. The balances, at times, may exceed
      federally insured limits. The Company defines cash and cash equivalents as
      highly liquid, short-term investments with a maturity at the date of acquisition
      of three months or less.




ACCOUNTS
      RECEIVABLE




The
      Company reviews customers' credit history before extending unsecured credit
      and
      establishes an allowance for uncollectible accounts based upon factors
      surrounding the credit risk of specific customers and other information.
      Accounts receivable are generally due 30 days after invoice date. Accounts
      receivable over 30 days are considered past due. The


F-6


Company
      does not accrue interest on past due accounts receivable. If accounts receivable
      in excess of the provided allowance are determined uncollectible, they are
      charged to expense in the year that determination is made. Accounts receivable
      are written off after all collection efforts have failed. Accounts receivable
      have been reduced by an allowance for uncollectible accounts of approximately
      $15,000 at both December 31, 2006 and 2005.




INVENTORIES




Inventories
      consist of raw materials, work in process and finished goods and are valued
      at
      lower of cost using the first-in, first-out (FIFO) method or market. Market
      represents estimated realizable value in the case of finished goods and
      replacement or reproduction cost in the case of other inventories. Because
      of
      changing technology and market demand, inventory is subject to obsolescence.
      An
      annual review is made of all inventories to determine if any obsolete,
      discontinued or slow moving items are in inventory. Based on this review,
      inventory is disposed of or an allowance for obsolescence established to cover
      any future disposals. Such estimates are difficult to make under current
      volatile economic conditions and it is possible significant changes in required
      inventory reserves may occur in the future.




IMPAIRMENT
      OF LONG-LIVED ASSETS




The
      Company reviews long-lived assets, including property and equipment and
      intangible assets, for impairment whenever events or changes in business
      circumstances indicate that the carrying amount of an asset may not be fully
      recoverable. An impairment loss would be recognized when the estimated future
      cash flows from the use of the asset are less than the carrying amount of that
      asset. To date, there have been no such losses.




DEPRECIATION




Property
      and equipment are recorded at cost. Depreciation is provided for using the
      straight-line method over an estimated useful life of 25 to 30 years for
      buildings and improvements and over useful lives ranging from three to seven
      years for all other property and equipment. Improvements are capitalized while
      maintenance, repairs and minor renewals are expensed when incurred.




DISCONTINUED
      OPERATIONS





The
      sale
      of the Company’s Norman photography product line to Promark International, Inc.
      was completed on October 20, 2006 pursuant to the terms of an Asset Purchase
      Agreement. The transaction involved the sale of inventory, equipment and certain
      other assets relating to the Norman photography product line. The Company
      negotiated the sale of these assets during the quarter ended September 30,
      2006.





On
      February 5, 2007, the Company sold certain assets and transferred certain
      liabilities related to its Vaddio division. The Company negotiated the sale
      of
      these assets and assumption of certain liabilities during the quarter ended
      December 31, 2006.





These
      assets met the requirements of SFAS No. 144, "Accounting for Impairment or
      Disposal of Long-Lived Assets" as being held for sale. Operations and cash
      flows
      will be eliminated as a result of the sales and the Company will not have any
      significant involvement in the operations after the sales. In accordance with
      appropriate accounting rules, the Company has reclassified the previously
      reported financial results to exclude the results of the Norman and Vaddio
      product lines and these results are presented on a historical basis as a
      separate line in the consolidated statements of operations and the consolidated
      balance sheets entitled "Assets/Liabilities sold relating to discontinued
      operations" and “Assets/Liabilities retained relating to discontinued
      operations”. In accordance with EITF 87-24, “Allocation of Interest to
      Discontinued Operations”, the Company elected to not allocate consolidated
      interest expense to the discontinued operations where the debt is not directly
      attributed to or related to the discontinued operations.  All of the
      financial information in the consolidated financial statements and notes to
      the
      consolidated financial statements has been revised to reflect only the results
      of continuing operations (see Note 12).




BUILDING
      AND LAND HELD FOR SALE




On
      June
      30, 2005, management signed an agreement to market for sale the building and
      land located in Brainerd, Minnesota. The building and land included our former
      assembly and distribution facility and our corporate headquarters. Accordingly,
      we reflected the carrying value of the building as held for sale as of December
      31, 2005. We discontinued recording depreciation on the building effective
      July
      1, 2005. On July 14, 2006 the building was sold for net proceeds of $643,640,
      prior to the repayment of the related mortgage, resulting in a loss of $5,276.


F-7


In
      November 2006, management signed an agreement and began marketing for sale
      the
      building and land located in Minneapolis, Minnesota. Accordingly, we have
      reflected the carrying value of the building as held for sale as of December
      31,
      2006 and December 31, 2005. As a result, we have discontinued recording
      depreciation on the building in the fourth quarter of the year ended December
      31, 2006 and management believes that the current market value of the building
      and land is in excess of its carrying value.




INTANGIBLE
      ASSETS




Intangible
      assets consisted primarily of patents and identifiable intangible assets,
      (intellectual property and non-compete agreement), and are being amortized
      using
      the straight-line method over their estimated useful lives ranging from three
      to
      fifteen years. Amortization expense was $22,412 and $24,446 relating to
      continuing operations for the years ended December 31, 2006 and 2005,
      respectively, and $24,065 and $59,544 relating to discontinued operations for
      the years ended December 31, 2006 and 2005, respectively. Estimated remaining
      amortization expense for the years ending December 31, 2007, 2008, 2009, 2010,
      and 2011 is $27,213, $23,466, $21,070, $15,454 and $2,984, respectively.




Schedule
      of Intangible Assets at December 31:


**2006****Gross**
              **Amount**
            
            **Accumulated**
              **Amortization**
            
            **Net
                Value**
              **at
                December 31, 2006**Trademarks
            
            
            
            
            $
            9,234
            
            
            
            
            $
            6,456
            
            
            
            
            $
            2,778Patents
            
            
            
            
            
            68,624
            
            
            
            
            
            35,644
            
            
            
            
            
            32,980Vector
                - non compete
            
            
            
            
            
            56,420
            
            
            
            
            
            8,462
            
            
            
            
            
            47,958Other
            
            
            
            
            
            11,500
            
            
            
            
            
            3,718
            
            
            
            
            
            7,782Totals
            
            
            
            
            $
            145,778
            
            
            
            
            $
            54,280
            
            
            
            
            $
            91,498





**2005****Gross**
              **Amount**
            
            **Accumulated**
              **Amortization**
            
            **Net
                Value**
              **at
                December 31, 2005**Trademarks
            
            
            
            
            $
            9,085
            
            
            
            
            $
            5,730
            
            
            
            
            $
            3,355Patents
            
            
            
            
            
            54,199
            
            
            
            
            
            24,027
            
            
            
            
            
            30,172Other
            
            
            
            
            
            9,500
            
            
            
            
            
            2,111
            
            
            
            
            
            7,389Totals
            
            
            
            
            $
            72,784
            
            
            
            
            $
            31,868
            
            
            
            
            $
            40,916




REVENUE
      RECOGNITION




The
      Company recognizes revenue on the date products are shipped to the customer
      and
      returns are permitted for defective equipment. The Company does not sell
      products with the guaranteed right of return. Estimated reserves for returns
      are
      established by management based on historical experience and are subject to
      ongoing review and adjustment by the Company. Sales and cost of goods sold
      are
      reported net of the provision for actual and estimated future returns in the
      accompanying consolidated statements of operations. Revenues are reported net
      of
      discounts and allowances. The Company’s revenue is recognized in accordance with
      generally accepted accounting principles as outlined in the SEC’s Staff
      Accounting Bulletin No. 104 “Revenue Recognition,” which requires that four
      basic criteria be met before revenue can be recognized: (i) persuasive evidence
      of an arrangement exists; (ii) the price is fixed or determinable; (iii)
      reasonably assured it is collectible; and (iv) product delivery has occurred.
      The Company recognizes revenue as products are shipped based on FOB shipping
      point terms when title passes to customers.




F-8




SHIPPING
      AND HANDLING COSTS




Shipping
      and handling costs charged to customers are included in sales and shipping
      and
      handling costs incurred by the Company have been included in cost of goods
      sold.




ALLOWANCE
      ACCOUNTS




The
      Company has established allowance reserves for sales returns and warranty cost.
      Reserves are estimated based on historical experience, current product lines
      being sold, and management's estimates. The Company provides a standard one
      or
      two-year warranty program for its products. The allowance reserve for sales
      returns and warranty cost relating to continuing operations was $175,000 at
      both
      December 31, 2006 and December 31, 2005. The following table provides the
      expense recorded and charges against the reserve relating to continuing
      operations for the years ended December 31, 2006 and 2005.


**2006**
              
              **2005**Accrued
                  balance - beginning
              
              $
              175,000
              
              $
              85,000Provision
              
              
              72,654
              
              
              168,163Claims
                  incurred
              
              
              (72,654
              )
              
              (78,163
              )Accrued
                  balance - ending
              
              $
              175,000
              
              $
              175,000


PREPAID
      EXPENSES




Included
      in prepaid expenses is purchased advertising time on television programs,
      advertising space in outdoor publications and catalogs for Nature Vision, Inc.
      products. These costs are then expensed over the contract, as the television
      shows are aired, and when the publications and catalogs are issued. Prepaid
      advertising expenses were $306,491 and $127,881 at December 31, 2006 and
      December 31, 2005, respectively. Advertising expensed relating to the continuing
      operations was $995,197 and $876,051 for the years ended December 31, 2006
      and
      2005, respectively. Advertising expensed relating to the discontinued operation
      was $409,426 and $266,354 for the years ended December 31, 2006 and 2005,
      respectively.




SELF-FUNDED
      INSURANCE




The
      Company maintains a partially self-funded group health and fully-funded
      short-term disability employee benefit plan. Specific and aggregate stop loss
      coverage on the health plan is provided to limit the ultimate exposure of the
      Company. A liability is provided for claims incurred but not reported.
      Management reviews this accrual on an on-going basis and believes it is adequate
      to cover such claims.




RESEARCH
      AND DEVELOPMENT




The
      Company expenses all costs related to product research and development as
      incurred. Research and development expense relating to the continuing operations
      was $166,320 and $72,334 for years ended December 31, 2006 and 2005,
      respectively. Research and development expense relating to the discontinued
      operation was $172,087 and $162,239 for the years ended December 31, 2006 and
      2005, respectively.




STOCK-BASED
      COMPENSATION




Prior
      to
      January 1, 2006, the Company accounted for its employee stock awards under
      the
      recognition and measurement provisions of APB Opinion No. 25, Accounting for
      Stock Issued to Employees, and related Interpretations, as permitted by SFAS
      No.
      123, Accounting for Stock-Based Compensation. See Note 6 for information
      regarding the Company’s stock-based incentive plans, including stock options.
      Generally, no stock option-based employee compensation cost was recognized
      in
      the Company’s Consolidated Statements of Operations prior to January 1, 2006, as
      stock options granted under those plans had an exercise price equal to the
      market value of the underlying common stock on the date of grant.




Effective
      January 1, 2006, the Company adopted the fair value recognition and measurements
      provisions of SFAS No. 123(R), using the modified-prospective-transition method.
      Under that transition method, compensation cost for stock options recognized
      during the year ended December 31, 2006 includes compensation cost for all
      options granted prior to, but not


F-9


vested
      as
      of January 1, 2006, based on the grant date fair value estimated in accordance
      with the provisions of SFAS No. 123. Compensation cost will be recorded for
      all
      options granted, if any, subsequent to January 1, 2006, based on the grant-date
      fair value estimated in accordance with the provisions of SFAS No. 123(R).
      Results for prior periods have not been restated.




In
      accordance with SFAS No. 123(R), cash flows from income tax benefits resulting
      from tax deductions in excess of the compensation cost recognized for
      stock-based awards have been classified as financing cash flows prospectively
      from January 1, 2006. Prior to adoption of SFAS No. 123(R), such excess income
      tax benefits were presented as operating cash flows. There were no cash flows
      from income tax benefits for the year ended December 31, 2006.





As
      a
      result of adopting SFAS 123(R) on January 1, 2006, the Company’s net loss for
      the year ended December 31, 2006 was not impacted since there were no options
      that were granted and / or vested during the year ended December 31, 2006.
      Basic
      and diluted loss per common share would not have changed for the year ended
      December 31, 2006 if the Company had not adopted SFAS No. 123(R). Basic and
      diluted income per common share for the year ended December 31, 2005 would
      have
      been impacted as shown in the pro forma information shown below, determined
      using the fair value method based on provisions of SFAS No. 123, Accounting
      for
      Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based
      Compensation - Transition and Disclosure.


**2005**Net
                income:As
                reported
            
            $
            886,934Pro
                forma
            
            $
            687,234Basic
                net income per common share:As
                reported
            
            $
            .41Pro
                forma
            
            $
            .32Diluted
                net income per common share:As
                reported
            
            $
            .38Pro
                forma
            
            $
            .30Stock
                based compensation:As
                reported
            
            $
            0Pro
                forma
            
            $
            199,700





There
      were no stock grants for the years ended December 31, 2006 and 2005. Therefore,
      there were no assumptions used in calculating the fair value of the options
      grants using the Black-Scholes option pricing model.





Stock
      options issued to non-employees (which no options were issued to non-employees),
      are accounted for in accordance with Emerging Issues Task Force (EITF) 96-18.




NET
      INCOME (LOSS) PER COMMON SHARE




Net
      loss
      per common share was based on the weighted average number of common shares
      outstanding during the periods when computing the basic net loss per share.
      When
      dilutive, stock options and warrants are included as equivalents using the
      treasury stock market method when computing the diluted net loss per share.
      There were dilutive common stock equivalents, options and warrants, of 197,958
      for the year ended December 31, 2005. There were no dilutive common stock
      equivalents, options and warrants, for the year ended December 31, 2006.
      Anti-dilutive options were 190,458 and 43,500 at December 31, 2006 and December
      31, 2005, respectively.




INCOME
      TAXES




The
      Company accounts for income taxes using the asset and liability approach, which
      requires the recognition of deferred tax assets and liabilities for tax
      consequences of temporary differences between the financial statement and income
      tax reporting bases of assets and liabilities based on currently enacted rates
      and laws. These temporary differences principally include depreciation,
      amortization, net operating losses, deferred retirement benefits, paid time
      off
      and performance benefits, contract payable, allowance for doubtful accounts,
      inventory obsolescence allowance, and warranty reserves. Deferred taxes are
      reduced by a valuation allowance to the extent that realization of the related
      deferred tax assets is not assured.




ESTIMATES




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues


F-10


and
      expenses during the reporting period. Actual results could differ from those
      estimates. For the Company, significant estimates include the allowance for
      doubtful accounts receivable, reserves for inventory valuation, reserves for
      sales returns, reserves for warranty services, and the valuation allowance
      for
      deferred tax assets.




RECENT
      ACCOUNTING PRONOUNCEMENTS




In
      July
      2006, the Financial Accounting Standards Board (FASB) issued Interpretation
      48
      (“FIN 48”), *Accounting
      for Uncertainty in Income Taxes - an Interpretation of FASB Statement No
      109* .
      The
      Interpretation provides a consistent recognition threshold and measurement
      attribute, as well as clear criteria for recognizing, derecognizing and
      measuring uncertain tax positions for financial statement purposes. The
      Interpretation also requires expanded disclosure with respect to the uncertainty
      in income tax positions. FIN 48 will be effective beginning the first quarter
      of
      2007 for the Company. Management is currently assessing the effect of this
      pronouncement on the Company’s consolidated financial statements.




In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* .
      This
      statement defines fair value, establishes a framework for measuring fair value,
      and expands disclosures about fair value measurements. SFAS No. 157 clarifies
      the definition of exchange price as the price between market participants in
      an
      orderly transaction to sell an asset or transfer a liability in the market
      in
      which the reporting entity would transact for the asset or liability, which
      market is the principal or most advantageous market for the asset or liability.
      The Company will be required to adopt SFAS No. 157 beginning in fiscal 2008.
      The
      Company does not believe the effect of SFAS No. 157 will be material to the
      Company’s consolidated financial statements.




In
      September 2006, the FASB issued SFAS No. 158, *Employers’
      Accounting for Defined Pension and Other Postretirement Plans* .
      This
      Statement requires recognition of the funded status of a single-employer defined
      benefit postretirement plan as an asset or liability in its statement of
      financial position. Funded status is determined as the difference between the
      fair value of plan assets and the benefit obligation. Changes in that funded
      status will be recognized in other comprehensive income. This recognition
      provision and the related disclosures are effective in fiscal 2007 for the
      Company. The Statement also requires the measurement of plan assets and benefit
      obligations as of the date of the fiscal year-end balance sheet. The Company
      will be required to adopt SFAS No. 158 beginning in fiscal 2008. The Company
      does not believe the effect of SFAS No. 158 will be material to the Company’s
      consolidated financial statements.





In
      September 2006, the SEC staff issued Staff Accounting Bulletin
      No. 108, *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements* (“SAB
      108”). SAB 108 was issued in order to eliminate the diversity in practice
      surrounding how public companies quantify financial statement misstatements.
      SAB
      108 requires that registrants quantify errors using both a balance sheet and
      income statement approach and evaluate whether either approach results in a
      misstated amount that, when all relevant quantitative and qualitative factors
      are considered, is material. The use of both of these methods is referred to
      as
      the “dual approach” and should be combined with the evaluation of qualitative
      elements surrounding the errors in accordance with SAB No. 99, *Materiality* .
      The
      adoption of SAB 108 was not material to the Company’s consolidated financial
      statements.




RECLASSIFICATIONS





Certain
      accounts in the prior periods' consolidated financial statements have been
      reclassified for comparative purposes to conform with the presentation in the
      current year consolidated financial statements. These reclassifications had
      no
      effect on net income or stockholders' equity.




NOTE
      2 -
      INVENTORIES




Inventories
      consisted of the following at:


**December
                31,**
              **2006**
            
            **December
                31,**
              **2005**Raw
                Materials
            
            $
            2,611,257
            
            $
            1,780,176Finished
                Goods
            
            
            2,009,932
            
            
            2,201,718Total
            
            
            4,621,189
            
            
            3,981,894Less:
                Valuation Allowance
            
            
            (155,000
            )
            
            (85,000
            )Inventories,
                net
            
            $
            4,466,189
            
            $
            3,896,894









F-11




NOTE
      3 -
      PROPERTY AND EQUIPMENT




Property
      and equipment consisted of the following at:


**December
                31,**
              **2006**
            
            **December
                31,**
              **2005**Tooling
            
            $
            1,669,071
            
            $
            934,252Office
                furniture and equipment
            
            
            592,784
            
            
            304,271Warehouse
                equipment
            
            
            293,834
            
            
            40,917Vehicles
            
            
            20,279
            
            
            82,708Leasehold
                improvements
            
            
            199,257
            
            
            -Construction
                in progress
            
            
            44,620
            
            
            687,665Total
            
            
            2,819,845
            
            
            2,049,813Less:
                Accumulated depreciation
            
            
            (1,123,887
            )
            
            (869,274
            )Net
            
            $
            1,695,958
            
            $
            1,180,539


Depreciation
      expense relating to continuing operations of $313,671 and $187,015 was recorded
      for the years ended December 31, 2006 and 2005, respectively. Depreciation
      expense related to discontinued operations of $75,589 and $76,860 was recorded
      for the years ended December 31, 2006 and 2005, respectively.




NOTE
      4 -
      LINE OF CREDIT, BANK




The
      Company had a line of credit financing agreement with First National Bank of
      Deerwood up to a maximum amount of $5,600,000 which expires April 1, 2007.
      Interest is payable monthly at prime plus .75% (9.00% at December 31, 2006)
      with
      a minimum interest rate of 5%. In March 2007, the Company replaced the line
      of credit with a $3,000,000 line of credit that has an interest
      rate of prime plus 1.00%. The line of credit is collateralized by accounts
      receivable, inventories, property and equipment. The agreement requires the
      following affirmative covenants measured based upon December 31 financial
      results, minimum net worth of $7,000,000, debt to equity ratio of less than
      1.0
      to 1.0 and debt service ratio not to exceed 1.2 to 1.0. The Company was out
      of
      compliance with debt to equity ratio being 1.11 to 1.0 and a negative debt
      service ratio. The Company has received a waiver letter from its credit
      provider.  The
      Company had a line of credit financing agreement with First National Bank of
      Deerwood up to a maximum amount of $4,000,000 which expired July 1, 2006.
      Interest was payable monthly at prime plus .75%, (8.00% at December 31, 2005),
      with a minimum interest rate of 5%. The line of credit was subsequently renewed
      through October 1, 2006 with a maximum amount of $5,000,000. The line of credit
      was collateralized by accounts receivable, inventories, property and equipment.
      The weighted average interest rate on the line of credit for the year ended
      December 31, 2006 was 8.69%. The balance outstanding on the line of credit
      was
      $3,900,000 and $2,230,000 at December 31, 2006 and December 31, 2005,
      respectively.




NOTE
      5 -
      LONG-TERM DEBT




Long-term
      debt consisted of the following at:


**December
                  31,**
                **2006**
              
              **December
                  31,**
                **2005**Note
                  Payable - First National Bank of Deerwood - paid in full in July
                  2006
              
              $
              -
              
              $
              404,068Note
                  Payable - GMAC - paid in full in January 2006
              
              
              -
              
              
              38,597Totals
              
              
              -
              
              
              442,665Less:
                  Current portion
              
              
              
              
              
              (55,649)Net
                  Long-term Debt
              
              $
              -
              
              $
              387,016




NOTE
        6 -
        STOCKHOLDERS’ EQUITY




The
      Company has a Stock Option Plan, (the Plan), which provides for granting of
      incentive and non-statutory stock options to employees and others. The aggregate
      of 293,958 shares of the Company’s common stock may be granted at exercise
      prices not less than fair market value at the date of grant. The Compensation
      Committee from the Board of Directors administers the Plan. In general, options
      vest immediately and up to 4.5 years, and expire 5 years from the date of
      grant.




Information
      regarding stock options is summarized below:


**Number
                of**
              **Options**
            
            **Weighted**
              **Average**
              **Option**
              **Exercise**Options
                Outstanding, December 31, 2004
            
            
            283,958
            
            $
            4.30Granted
            
            
            -
            
            
            -Expired
            
            
            (42,500
            )
            
            6.29Exercised
            
            
            -
            
            
            -Options
                Outstanding, December 31, 2005
            
            
            241,458
            
            
            3.95Granted
            
            
            -
            
            
            -Expired
            
            
            (4,500
            )
            
            6.88Exercised
            
            
            (46,500
            )
            
            6.48Options
                Outstanding, December 31, 2006
            
            
            190,458
            
            $
            3.26





The
      weighted average contractual life of options outstanding at December 31, 2006
      and 2005 was 2.53 and 2.82 years, respectively.




Following
      is a schedule of options outstanding and exercisable at December 31,
      2006:




**Options
      Outstanding**




**Options
                Outstanding**
            **Options
                Exercisable****Exercise
                Price**
            **Number**
              **Outstanding**
            **Remaining**
              **Contractual**
              **Life**
            **Wgt-Ave**
              **Exercise**
              **Price**
            **Number
                Exercise**
              **Exercisable**
            **Wgt-Ave**
              **Exercise**
              **Prices**$
            0.89
            
            87,206
            
            2.39
            $
            0.89
            
            87,206
            $
            0.89$
            4.72
            
            25,002
            
            2.02
            
            4.72
            
            25,002
            
            4.72$
            5.43
            
            78,250
            
            2.84
            
            5.43
            
            78,250
            
            5.43$
            0.89-$5.43
            
            190,458
            
            2.53
            $
            3.26
            
            190,458
            $
            3.26




The
      intrinsic value of the options outstanding and exercisable at December 31,
      2006
      was $468,527. The intrinsic value of the options exercised during the year
      ended
      December 31, 2006 was $147,735.




On
      November 11, 2005, the Company accelerated the vesting of the remaining unvested
      options granted in 2004 (58,687 options), through a written action of the Board
      of Directors. The Directors had been advised by its compensation consultant
      that
      the Company’s officer and director compensation is generally below that paid by
      similarly-sized corporations. The options had no intrinsic value as of the
      modification date, and therefore no accounting impact was a result of this
      action.




F-12




NOTE
      7 -
      INCOME TAXES




The
      provision for income taxes for continuing operations consists of the following
      components for the years ended December 31:


**2006**
              
              **2005**Current
              
              $
              5,000
              
              $
              18,846Deferred
              
              
              (1,026,000
              )
              
              329,154Total
                  Provision for (Benefit from) Income Taxes
              
              $
              (1,021,000
              )
              $
              348,000


The
      provision for taxes differs from the expected provision that would result from
      the application of federal tax rates to pre-tax income. A comparison of the
      provision for income tax expense at the federal statutory rate of 34% for the
      years ended December 31 to the Company’s effective rate is as
      follows:


**2006**
            
            **2005**Federal
                statutory rate
            
            
            (34.0)
            %
            
            34.0
            %State
                tax, net of federal benefit
            
            
            (2.8)
            
            
            2.8Permanent
                differences and other including surtax exemption
            
            
            (2.4)
            
            
            3.2Research
                and development credit
            
            
            (0.0)
            
            
            (0.0
            )Effective
                Tax Rate
            
            
            (39.2)
            %
            
            40.0
            %




The
      net
      deferred tax assets and liabilities included in the financial statements include
      the following amounts at December 31:


**2006**
              
              **2005****Current
                  Amounts**Deferred
                  tax assets
              
              $
              -
              
              $
              350,000Net
                  Current Deferred Tax Assets
              
              $
              -
              
              $
              350,000**Non-current
                  Amounts**Deferred
                  Tax Assets
              
              $
              1,577,306
              
              $
              435,746Deferred
                  Tax Liabilities
              
              
              (554,760
              )
              
              (514,200)Net
                  Non-current Deferred Tax Asset (Liability)
              
              $
              1,022,546
              
              $
              (78,454)Total
                  Net Deferred Tax Asset
              
              $
              1,022,546
              
              $
              271,546




**2006**
            
            **2005**Deferred
                Tax AssetsNet
                Operating Loss Carryforwards
            
            $
            1,113,000
            
            $
            182,500Contract
                Payable
            
            
            282,000
            
            
            264,000Depreciation
                & Amortization
            
            
            -
            
            
            -Deferred
                Compensation
            
            
            233,000
            
            
            267,500Returns
                Allowance
            
            
            71,000
            
            
            114,500Inventory
                Reserve
            
            
            63,000
            
            
            84,000Bad
                Debt Reserve
            
            
            6,000
            
            
            14,500Other
                Allowances
            
            
            72,800
            
            
            134,000Total
            
            
            1,840,800
            
            
            1,061,000Less
                Valuation Allowances
            
            
            (275,254
            )
            
            (275,254
            )Deferred
                Tax Asset
            
            $
            1,565,546
            
            $
            785,746Deferred
                Tax LiabilitiesDepreciation
                & Amortization
            
            $
            (543,000
            )
            $
            (514,200
            )





The
      change in the valuation allowance was $0 and $571,746 for the years ended
      December 31, 2006 and 2005, respectively.  The principal reason for the
      change in the valuation allowance for the year ended December 31, 2005 was
      due
      to the sale of the Bookendz product line (see note 12) which was fully reserved
      at December 31, 2004 but as a result of the sale in 2005, required the Company
      to record a deferred tax liability at December 31, 2005.  The valuation
      allowance recorded for the year ended December 31, 2004 was based on the
      Company's review of the temporary differences that resulted from the reverse
      merger and recording a valuation allowance on the deferred tax assets for the
      items which more likely than not were not realizable.  In assessing the
      realizability of deferred tax assets, management considers whether it is more
      likely than not that some portion or all of the deferred tax assets will not
      be
      realized. The ultimate realization of deferred tax assets is dependent upon
      the
      generation of future taxable income during the periods in which those temporary
      differences become deductible. Management considers the scheduled reversal
      of
      deferred tax liabilities, historical taxable income including available net
      operating loss carryforwards to offset taxable income, and projected future
      taxable income in making this assessment.





The
      Company has federal and state net operating losses of approximately $2,900,000
      and $1,850,000, respectively, which, if not used, will begin to expire in 2024.
      Future changes in the ownership of the Company may place limitations on the
      use
      of these net operating losses.




NOTE
      8 -
      CONTRACT PAYABLE - VADDIO




The
      Company has employment agreements with 3 employees. The agreements, which
      expired on December 31, 2006, provided for an annual base salary and bonus
      payments under each employment agreement, equal to 3.4% to each employee of
      annual sales of Vaddio products (net of allowances for returns and billing
      errors) in excess of $1,600,000 and $2,000,000 in 2005 and 2006, respectively.
      If the Company had terminated the employment agreement with the employee without
      cause prior to December 31, 2006, or if the employee terminated his employment
      prior to December 31, 2006 under certain conditions (including a sale of all
      or
      substantially all of the assets comprising the Vaddio division or the
      discontinuation of the Vaddio division), then the employee was entitled to
      the
      bonus payment as defined in the agreement at the time of the termination of
      his
      employment. The employee has agreed, during his employment and for a period
      of
      three years thereafter, not to compete with the Company in any business that
      the
      Company is conducting on the date of termination, nor will he solicit employees,
      customers and suppliers of the Company or accept employment or provide services
      to the Company’s customers during this three-year time period. Since the bonus
      payment was not contingent on the continued employment of the employee and
      the
      amount due can be estimated and is likely to be paid, the amount of $900,000
      (the estimated bonus payment due) was accrued at the date of the reverse merger.
      The amount accrued was the fair value of the liability at the date of the
      reverse merger. Contract payments of $462,420 were paid in 2006. The Company
      accrued an additional $511,800 related to this agreement for the year ended
      December 31, 2006. The amount owed related to the contract payable was $762,231
      and $712,851 at December 31, 2006 and 2005, respectively, and is included in
      liabilities retained relating to discontinued operations.




F-13


NOTE
      9 -
      DEFERRED RETIREMENT BENEFITS




The
      Company has retirement benefit agreements with past employees, which are funded
      by life insurance. Under the agreements, covered individuals become vested
      immediately upon death or if employed at age 65. Benefit costs were recognized
      over the period of service and recorded as accrued retirement benefits. The
      total accrued balance due was $630,666 and $723,125 at December 31, 2006 and
      December 31, 2005, respectively.




NOTE
      10 -
      COMMITMENTS AND CONTINGENCIES




Employment
      Agreement




The
      Company has entered into an employment with the President and Chief Executive
      Officer. Upon termination of employment the agreement provides for a non-compete
      period of 5 years. In exchange for the non-compete, the Company is obligated
      to
      pay the employee at his base rate for a period of up to 2 years.




License
      Agreement




In
      January 2002, Waterstrike Incorporated, (Waterstrike) granted the Company an
      exclusive license for the use of certain underwater camera technologies. Under
      the agreement, the Company is required to pay Waterstrike a royalty of $23
      for
      each licensed product sold beginning on January 1, 2002. The agreement requires
      the Company to pay annual royalties based on a minimum level of unit sales.
      If
      the minimum level of unit sales in not met, the Company must pay additional
      royalties up to the minimum required, or forfeit the exclusivity of the
      agreement. For the years ended December 31, 2006 and 2005, the Company did
      not
      meet the minimum unit sales level required under the agreement and may lose
      the
      exclusivity of the license agreement. The license will terminate upon the later
      of the date of expiration of the last to expire patent included in the licensed
      technology, or the date that the Company permanently ceases the sale of the
      devices using the technology. Royalty expense pursuant to this exclusive license
      agreement was $32,896 and $34,754 for the years ended December 31, 2006 and
      2005, respectively.





Lease
      Commitment





The
      Company entered into a lease agreement for its assembly and distribution
      facility and corporate headquarters in Brainerd, Minnesota. The lease commenced
      on September 1, 2006 and expires August 31, 2016. The monthly base rent
      increases from $11,718 to $17,800 over the term of the lease. The Company will
      record monthly rent expense equal to the total of the payments due over the
      lease term, divided by the number of months of the lease term. The difference
      between rent expense recorded and the amount paid will be credited or charged
      to
      deferred rent. The Company is also required to pay its portion of operating
      expenses. Rent expense, including operating expenses, was $148,158 and $18,747
      for the years ended December 31, 2006 and 2005, respectively.





Future
      minimum lease payments are as follows for the years ending December
      31:


2007
            
            $
            142,9932008
            
            
            150,1132009
            
            
            157,2332010
            
            
            164,3532011
            
            
            172,067Thereafter
            
            
            923,267Total
            
            $
            1,710,026


NOTE
      11 -
      CONCENTRATIONS




Major
      Customers




The
      Company derived more than 10% of its revenues from the following unaffiliated
      customers and had receivable balances from those customers in the following
      amounts:


**2006**
              
              
              
              **2005****Sales**
              
              **Receivables**
              
              **Sales**
              
              **Receivables**Customer
                  A
              
              
              
              
              $
              1,970,130
              
              $
              445,923
              
              
              
              
              $
              2,032,976
              
              $
              535,059Customer
                  B
              
              
              
              
              
              1,363,882
              
              
              429,095
              
              
              
              
              
              1,356,973
              
              
              561,247Customer
                  C
              
              
              
              
              
              1,077,236
              
              
              461,742
              
              
              
              
              
              1,710,910
              
              
              *Customer
                  D
              
              
              
              
              
              *
              
              
              *
              
              
              
              
              
              1,168,082
              
              
              261,674


*Did not represent more than 10% of the Company’s revenues or accounts
        receivable for the period indicated.




Major
      Suppliers




Purchases
      for the year ended December 31, 2006 and 2005 include purchases from an offshore
      manufacturer of outdoor recreation products that individually accounted for
      47%
      and 52%, respectively, of the materials and supplies used by the Company in
      its
      continuing operations. Management believes minimal risk is present under this
      offshore manufacturing arrangement due to other suppliers being readily
      available.





Foreign
      Sales





Included
      in the consolidated statements of operations are foreign sales related to
      continuing operations of $1,123,184 and $869,904 for the years ended December
      31, 2006 and 2005, respectively, and foreign sales related to discontinued
      operations of $1,188,431 and $1,210,322 for the years ended December 31, 2006
      and 2005, respectively.





Foreign
      Inventory





Included
      in the consolidated balance sheets are international inventories related to
      continuing operations of $204,098 and $771,301 at December 31, 2006 and December
      31, 2005, respectively, and international inventories related to discontinued
      operations of $189,754 and $393,564 at December 31, 2006 and December 31, 2005,
      respectively. Foreign inventories consist of raw material goods held in Asia
      and
      used in the production of Nature Vision products and finished goods held in
      Europe related to discontinued operations.








F-14





NOTE
      12 -
      DISCONTINUED OPERATIONS





**Norman
      photography product line sale**





The
      sale
      of Nature Vision’s Norman photography product line to Promark International,
      Inc. was completed on October 20, 2006 pursuant to the terms of an Asset
      Purchase Agreement. The transaction involved the sale of inventory, equipment
      and certain other assets relating to Nature Vision’s Norman photography product
      line for a total purchase price of approximately $2,400,000, of which $300,000
      is payable pursuant to the terms of a three-year note. The note bears interest
      at prime plus 1% and is unsecured. The note requires quarterly principal
      payments of $25,000 plus interest through September 30, 2009. This business
      has
      been classified as discontinued operations.





The
      assets sold include inventories and property and equipment based on carrying
      amount of inventories of $1,979,651 and property and equipment net book value
      of
      $9,832, and prepaid expenses of $37,766. Sales proceeds received were cash
      of
      $1,998,252, three-year note receivable of $300,000 and a 90 day inventory
      holdback of $125,000. Also recorded was transaction costs totaling $142,853.
      The
      gain on the sale of the unit was calculated as follows:




Cash
                received
            
            $
            1,998,252Note
                receivable
            
            
            300,000Due
                from buyer
            
            
            125,000Subtotal
            
            
            2,423,252Less:
                Transaction costs
            
            
            (142,853
            )Net
                proceeds on sale
            
            
            2,280,399Less:
                Inventories carrying amount
            
            
            (1,979,651
            )Less:
                Prepaid expenses
            
            
            (37,766
            )Less:
                Property and equipment carrying amount
            
            
            (9,832
            )Gain
                on disposition of assets
            
            $
            253,150


**Vaddio
      product line sale**




The
      sale
      of Nature Vision’s Vaddio product line to New Vad closed on February 5, 2007
      pursuant to the terms of the Asset Purchase Agreement. The transaction involved
      the sale of fixed assets, equipment, licenses, intellectual property and certain
      other assets relating to Nature Vision’s Vaddio product line. The original
      purchase price paid by the Buyer was $759,070 which consisted of $710,694 in
      cash at closing and $48,376 in assumed paid time off. In addition, Nature Vision
      will receive 2% of receipts from the gross sale of all Vaddio products sold
      by
      New Vad after March 1, 2007, paid on a monthly basis with a six month deferral,
      until a total payment of $750,000 is received.




As
      part
      of the transaction, the parties also entered into a Consignment Sale Agreement,
      providing for the sale of Nature Vision’s inventory to New Vad over the next 12
      months at a book value estimated to be $2,031,359. Under the terms of the
      Consignment Sale Agreement, New Vad will purchase at the Company’s cost the
      consigned inventory from Nature Vision as needed before purchasing a similar
      type of item from a third party until the inventory is sold in its entirety,
      or
      January 31, 2008, at which time the remaining inventory will be purchased.




In
      addition, the parties entered into a Collection Agreement, under which New
      Vad
      will collect and transmit to Nature Vision payments made by customers on Nature
      Vision’s accounts receivable for products or services sold or provided before
      the closing date.




Estimated
      gain on the sale was calculated as follows:




Cash
                received
            
            
            $
            710,694Assumption
                of accrued paid time off
            
            
            
            48,376Subtotal
            
            
            
            759,070Less:
                Estimated transaction costs
            
            
            
            (438,500
            )Net
                proceeds on sale
            
            
            
            320,570Less:
                Prepaid expenses
            
            
            
            (72,167
            )Less:
                Property and equipment carrying amount
            
            
            
            (181,623
            )Gain
                on disposition of assets
            
            
            $
            66,780


The
      potential deferral proceeds of up to $750,000 will be recorded when earned
      and
      collection is deemed probable. No deferred sale proceeds were recorded during
      the year ended December 31, 2006.




**Bookendz
      product line sale**




On
      October 28, 2005, the Company sold its Bookendz product line, related patent
      and
      remaining inventory. Upon the sale closing, the Company received gross $200,000
      for the equipment and patent related to the product line. The Company paid
      selling expenses of $45,576. The Company received $211,582 for the inventory
      on
      November 28, 2005. The Company recorded a loss on the sale of the Bookendz
      product line of $29,378 for the year ended December 31, 2005. The Company will
      also receive 10% of all future sales of product related to the patent from
      the
      buyer for a period of three years from the date of sale. These payments are
      to
      be paid quarterly, beginning in the first Quarter of 2006. These payments will
      be recognized as income as earned in future periods. Royalties earned for the
      year ended December 31, 2006 were $23,019. There were no royalties earned for
      the years ended December 31, 2005.





The
      following are condensed statements of operations of the discontinued operations
      (Vaddio, Norman, and Bookendz) for the years end December 31:





2006
            
            2005Sales,
                Net
            
            $
            14,509,256
            
            $
            12,590,621Cost of good sold
            
            
            9,352,023
            
            
            9,079,071Gross
                profit
            
            
            5,157,233
            
            
            3,511,550Selling,
                general, and administrative
            
            
            4,594,900
            
            
            2,885,813Income
                from operations
            
            
            562,333
            
            
            625,737Other
                income (expense)
            
            
            (3,658
            )
            
            5,887Gain (loss) on sale of Bookendz product line
            
            
            23,019
            
            
            (29,378
            )Gain
                on sale of Norman product line
            
            
            253,150
            
            
            -Income
                and gain from discontinued operations
            
            
            834,844
            
            
            602,246Provision
                for income taxes
            
            
            334,000
            
            
            237,000Gain
                from discontinued operations
            
            $
            500,844
            
            $
            $365,246






F-15








Assets
      and liabilities as a result of discontinued operations (Vaddio and Norman)
      consisted of the following at December 31:


2006
            
            2005Current
                assets sold relating to discontinued operations:Inventory
            
            $
            -
            
            $
            2,080,090Prepaid
                expenses
            
            
            84,855
            
            
            128,901Total
            
            $
            84,855
            
            $
            2,208,991Other
                assets sold relating to discontinued operations:Fixed
                assets, net
            
            
            156,199
            
            
            148,472Intangibles,
                net
            
            
            30,502
            
            
            54,567Total
            
            $
            186,701
            
            $
            203,039Current
                liabilities assumed relating to discontinued operations:Accrued vacation
            
            $
            46,678
            
            $
            46,906


Assets
      and liabilities retained relating to the discontinued operations (Vaddio and
      Norman) consisted of the following at December 31:


2006
            
            2005Current
                assets retained relating to discontinued operations:Accounts receivable
            
            $
            1,805,240
            
            $
            1,181,967Inventory
            
            
            2,261,240
            
            
            2,344,018Total
            
            $
            4,066,480
            
            $
            3,525,985Current
                liabilities retained relating to discontinued operations:Accounts
                payable
            
            $
            992,685
            
            $
            805,843Accrued
                payroll and related expenses
            
            
            80,012
            
            
            87,742Accrued
                vacation
            
            
            -
            
            
            46,906Contract
                payable
            
            
            762,231
            
            
            462,420Other
                current liabilities
            
            
            37,973
            
            
            139,315Total
            
            $
            1,872,901
            
            $
            1,542,226Long-term
                liabilities retained relating to discontinued operations:Contract
                payable
            
            $
            -
            
            $
            250,431


NOTE
      13 -
      SUPPLEMENTAL CASH FLOWS


**2006**
              
              **2005**Supplemental
                  Cash Flow DisclosuresCash
                  paid for interest
              
              $
              366,611
              
              $
              120,191Cash
                  (received) paid for income taxes
              
              
              2,000
              
              
              (72,954
              )Noncash
                  investing and financing activitiesNote
                  receivable recorded for sale of discontinued operations
              
              $
              300,000
              
              $
              -Transfer
                  of prepaid expenses to property and equipment
              
              
              -
              
              $
              35,470




NOTE
      14 -
      VECTOR ACQUISITION




On
      February 28, 2006, the Company purchased substantially all the assets of
      Vector Teknologies, LLC for $384,074 in cash. The Company also entered into
      a royalty agreement for sales of the purchased products until December 31,
      2009.
      The royalty agreement is not anticipated to be material. The purchase provides
      the Company with a new line of products, downriggers for controlled depth
      fishing, for the outdoor recreation division, Nature Vision. The product line
      will also provide a platform for additional product innovation. The acquisition
      was financed with the existing line of credit. The pro forma results of
      operations as if the Vector Teknologies, LLC purchase occurred on January
      1, 2005 are not material.




NOTE
      15 -
      RETIREMENT PLAN




The
      Company has a 401(K) Employee Retirement Plan. Company contributions made to
      the
      Plan for the years ended December 31, 2006 and 2005 were $122,057 and $102,608,
      respectively.