UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C.  20549
 
 _______________________
 
 FORM
10-Q
 
 x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
 THE
SECURITIES EXCHANGE ACT OF 1934
 
 For
the quarterly period ended September 30, 2008
 
  ̈ TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF
 THE
EXCHANGE ACT OF 1934
 
 For the
transition period from _________ to _________
 
 Commission
File Number :  0-7475
 
 _______________________
 
 NATURE
VISION, INC.
 (Exact
name of registrant as specified 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)
  (218)
825-0733
 (Registrant’s
telephone number)
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such requirements for the past 90
days.
 x  Yes   ̈  No
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
 Large
      accelerated filer   ̈
                Accelerated
      filer  o
                Non-accelerated
      filer  o
                Smaller
      reporting company  x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
  ̈  Yes  x  No
 
 The
number of shares of issuer’s common stock, par value $0.16 per share,
outstanding as of November 12, 2008, was 2,312,583.  The registrant
has no other classes of securities outstanding.
  
  NATURE VISION, INC.
 INDEX
 
 
 PART I
                                        
                                        FINANCIAL
      INFORMATION
                                        Page NumberItem 1:
                                        
                                        Financial StatementsConsolidated Balance Sheets – September 30, 2008 and December
      31, 2007
                                        1Consolidated Statements of Operations - Three Months and Nine
      Months Ended September 30, 2008 and 2007
                                        2Consolidated Statements of Cash Flows - Nine Months Ended
      September 30, 2008 and 2007
                                        3Notes to Consolidated Financial
    Statements
                                        4Item
      2:
                                        
                                        Management's Discussion and Analysis of Financial Condition
      and Results of Operations
                                        20Item
      4T:
                                        
                                        Controls and Procedures
                                        26PART II
                                        
                                        OTHER
      INFORMATIONItem
      4:
                                        
                                        Submission of Matters to a Vote of Security
      Holders
                                        27Item 6:
                                        
                                        Exhibits
                                        27Signatures
                                        28
  Index
  Part I – FINANCIAL
INFORMATION
 
 Item
1: Financial Statements
 
 Nature Vision, Inc. and Subsidiaries
 Consolidated
Balance Sheets
 September
30, 2008 and December 31, 2007
 
 
 UnauditedSeptember
      30,
                                                    
                                                    
                                                    December
      31,2008
                                                    
                                                    
                                                    2007ASSETSCURRENT
      ASSETSCash
      and Cash Equivalents
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    131,487Accounts
      Receivable, net
                                                    
                                                    
                                                    1,526,572
                                                    
                                                    
                                                    
                                                    2,774,618Inventories,
      net
                                                    
                                                    
                                                    5,566,697
                                                    
                                                    
                                                    
                                                    4,769,648Current
      Portion of Prepaid Expenses
                                                    
                                                    
                                                    204,481
                                                    
                                                    
                                                    
                                                    229,594Current
      Assets Retained Relating to Discontinued Operations
                                                    
                                                    
                                                    221,805
                                                    
                                                    
                                                    
                                                    343,413Total
      Current Assets
                                                    
                                                    
                                                    7,519,555
                                                    
                                                    
                                                    
                                                    8,248,760PROPERTY
      AND EQUIPMENT, NET
                                                    
                                                    
                                                    1,989,767
                                                    
                                                    
                                                    
                                                    1,555,052NON-CURRENT
      ASSETSBuilding
      and Land Held for Sale, net
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    701,719Prepaid
      Expenses, net of Current Portion
                                                    
                                                    
                                                    36,183
                                                    
                                                    
                                                    
                                                    47,468Deferred
      Income Taxes
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    1,022,546Goodwill
                                                    
                                                    
                                                    666,373
                                                    
                                                    
                                                    
                                                    666,373Intangibles,
      net
                                                    
                                                    
                                                    1,622,352
                                                    
                                                    
                                                    
                                                    1,056,746Total
      Non-Current Assets
                                                    
                                                    
                                                    2,324,908
                                                    
                                                    
                                                    
                                                    3,494,852TOTAL
      ASSETS
                                                    
                                                    $
                                                    11,834,230
                                                    
                                                    
                                                    $
                                                    13,298,664LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIESChecks
      Issued in Excess of Cash in Bank
                                                    
                                                    $
                                                    131,119
                                                    
                                                    
                                                    $
                                                    -Current
      Portion of Long-Term Debt
                                                    
                                                    
                                                    289,540
                                                    
                                                    
                                                    
                                                    2,133,333Note
      Payable – Related Party
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    979,159Current
      Portion of Deferred Retirement Benefits
                                                    
                                                    
                                                    62,051
                                                    
                                                    
                                                    
                                                    74,657Line
      of Credit, Bank
                                                    
                                                    
                                                    3,738,321
                                                    
                                                    
                                                    
                                                    2,537,835Accounts
      Payable
                                                    
                                                    
                                                    1,183,130
                                                    
                                                    
                                                    
                                                    558,040Accrued
      Payroll and Payroll Taxes
                                                    
                                                    
                                                    112,580
                                                    
                                                    
                                                    
                                                    166,758Accrued
      Expenses
                                                    
                                                    
                                                    642,387
                                                    
                                                    
                                                    
                                                    710,654Current
      Liabilities Retained Relating to Discontinued
    Operations
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    25,952Total
      Current Liabilities
                                                    
                                                    
                                                    6,159,128
                                                    
                                                    
                                                    
                                                    7,186,388LONG-TERM
      LIABILITIESLong-term
      Debt, Net of Current Portion
                                                    
                                                    
                                                    559,848
                                                    
                                                    
                                                    
                                                    466,667Note
      Payable – Related Party
                                                    
                                                    
                                                    912,238
                                                    
                                                    
                                                    
                                                    -Deferred
      Retirement Benefits, Net of Current Portion
                                                    
                                                    
                                                    437,349
                                                    
                                                    
                                                    
                                                    483,214Total
      Non-Current Liabilities
                                                    
                                                    
                                                    1,909,435
                                                    
                                                    
                                                    
                                                    949,881Total
      Liabilities
                                                    
                                                    
                                                    8,068,563
                                                    
                                                    
                                                    
                                                    8,136,269COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS’
      EQUITYCommon
      Stock, $.16 Par Value per Share 25,000,000 Shares Authorized Common Shares
      Issued and Outstanding were 2,312,583 at September 30, 2008 and December
      31, 2007
                                                    
                                                    
                                                    370,013
                                                    
                                                    
                                                    
                                                    370,013Additional
      Paid-In Capital
                                                    
                                                    
                                                    7,107,579
                                                    
                                                    
                                                    
                                                    7,005,553Accumulated
      Deficit
                                                    
                                                    
                                                    (3,711,925
                                                    )
                                                    
                                                    
                                                    (2,213,171
                                                    )Total
      Stockholders’ Equity
                                                    
                                                    
                                                    3,765,667
                                                    
                                                    
                                                    
                                                    5,162,395TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                                                    
                                                    $
                                                    11,834,230
                                                    
                                                    
                                                    $
                                                    13,298,664
 
 See
accompanying notes to consolidated financial statements.
  1
 Index
  Nature
Vision, Inc. and Subsidiaries
 Consolidated
Statements of Operations (Unaudited)
 
 
 Three
      months ended September 30,
                  
                  
                  Nine
      months ended September 30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007SALES,
      NET
                  
                  $
                  2,199,853
                  
                  
                  $
                  1,528,700
                  
                  
                  $
                  6,017,084
                  
                  
                  $
                  4,052,631COST
      OF GOOD SOLD
                  
                  
                  1,882,706
                  
                  
                  
                  1,202,788
                  
                  
                  
                  5,053,292
                  
                  
                  
                  3,526,628GROSS
      PROFIT
                  
                  
                  317,147
                  
                  
                  
                  325,912
                  
                  
                  
                  963,792
                  
                  
                  
                  526,003SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES
                  
                  
                  1,040,954
                  
                  
                  
                  738,990
                  
                  
                  
                  3,053,862
                  
                  
                  
                  2,565,694LOSS
      FROM OPERATIONS
                  
                  
                  (723,807
                  )
                  
                  
                  (413,078
                  )
                  
                  
                  (2,090,070
                  )
                  
                  
                  (2,039,691
                  )OTHER
      INCOME (EXPENSE)Interest
      expense
                  
                  
                  (131,776
                  )
                  
                  
                  (70,888
                  )
                  
                  
                  (396,941
                  )
                  
                  
                  (197,002
                  )Interest
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  15,301Other
      expenses
                  
                  
                  (419
                  )
                  
                  
                  (1,721
                  )
                  
                  
                  (2,078
                  )
                  
                  
                  (373
                  )Net
      Other Income (Expenses)
                  
                  
                  (132,195
                  )
                  
                  
                  (72,609
                  )
                  
                  
                  (399,019
                  )
                  
                  
                  (182,074
                  )LOSS
      FROM CONTINUING OPERATIONS BEFORE TAXES
                  
                  
                  (856,002
                  )
                  
                  
                  (485,687
                  )
                  
                  
                  (2,489,089
                  )
                  
                  
                  (2,221,765
                  )PROVISION
      FOR INCOME TAX EXPENSE
                  
                  
                  428,274
                  
                  
                  
                  -
                  
                  
                  
                  428,274
                  
                  
                  
                  -LOSS
      FROM CONTINUING OPERATIONS
                  
                  
                  (1,284,276
                  )
                  
                  
                  (485,687
                  )
                  
                  
                  (2,917,363
                  )
                  
                  
                  (2,221,765
                  )GAIN  (LOSS)
      FROM DISCONTINUED OPERATIONS, NET OF TAX
                  
                  
                  303,804
                  
                  
                  
                  (43,482
                  )
                  
                  
                  1,418,609
                  
                  
                  
                  91,715NET
      LOSS
                  
                  $
                  (980,472
                  )
                  
                  $
                  (529,169
                  )
                  
                  $
                  (1,498,754
                  )
                  
                  $
                  (2,130,050
                  )Loss
      from continuing operations per common shareBasic
                  
                  $
                  (0.56
                  )
                  
                  $
                  (0.21
                  )
                  
                  $
                  (1.26
                  )
                  
                  $
                  (0.97
                  )Diluted
                  
                  $
                  (0.56
                  )
                  
                  $
                  (0.21
                  )
                  
                  $
                  (1.26
                  )
                  
                  $
                  (0.97
                  )Gain
      (loss) from discontinued operations per common shareBasic
                  
                  $
                  0.14
                  
                  
                  $
                  (0.02
                  )
                  
                  $
                  0.61
                  
                  
                  $
                  0.04Diluted
                  
                  $
                  0.14
                  
                  
                  $
                  (0.02
                  )
                  
                  $
                  0.61
                  
                  
                  $
                  0.04Net
      loss per common shareBasic
                  
                  $
                  (0.42
                  )
                  
                  $
                  (0.23
                  )
                  
                  $
                  (0.65
                  )
                  
                  $
                  (0.93
                  )Diluted
                  
                  $
                  (0.42
                  )
                  
                  $
                  (0.23
                  )
                  
                  $
                  (0.65
                  )
                  
                  $
                  (0.93
                  )Weighted
      average common sharesBasic
                  
                  
                  2,312,583
                  
                  
                  
                  2,312,583
                  
                  
                  
                  2,312,583
                  
                  
                  
                  2,278,723Diluted
                  
                  
                  2,312,583
                  
                  
                  
                  2,312,583
                  
                  
                  
                  2,312,583
                  
                  
                  
                  2,278,723
 
 See
accompanying notes to consolidated financial statements.
  2
 Index
  Nature
Vision, Inc. and Subsidiaries
 Consolidated
Statements of Cash Flows (Unaudited)
 Nine
Months Ended September 30, 2008 and 2007
 
 
 2008
                    
                    
                    2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                    
                    $
                    (1,498,754
                    )
                    
                    $
                    (2,130,050
                    )Adjustments
      to reconcile net loss to net cash flows from operating
      activitiesDepreciation
      and amortization
                    
                    
                    593,354
                    
                    
                    
                    337,268Gain
      on sale of discontinued operations
                    
                    
                    (465,150
                    )
                    
                    
                    (189,440
                    )Gain
      on disposal of equipment
                    
                    
                    -
                    
                    
                    
                    (163,689
                    )Loss
      on impairment of tooling
                    
                    
                    28,180
                    
                    
                    
                    -Gain
      on sale of building, net of income taxes
                    
                    
                    (998,950
                    )
                    
                    
                    -Stock
      based compensation
                    
                    
                    1,726
                    
                    
                    
                    -Provision
      for deferred income taxes
                    
                    
                    428,274
                    
                    
                    
                    -Amortization
      of original issue discount
                    
                    
                    33,379
                    
                    
                    
                    -Changes
      in operating assets and liabilitiesAccounts
      receivable
                    
                    
                    1,248,046
                    
                    
                    
                    1,878,314Inventories,
      net
                    
                    
                    (537,393
                    )
                    
                    
                    (308,695
                    )Prepaid
      expenses
                    
                    
                    36,398
                    
                    
                    
                    76,256Accounts
      payable
                    
                    
                    625,090
                    
                    
                    
                    8,260Income
      taxes payable
                    
                    
                    -
                    
                    
                    
                    (5,000
                    )Accrued
      payroll and payroll taxes
                    
                    
                    (54,178
                    )
                    
                    
                    (127,203
                    )Accrued
      expenses
                    
                    
                    (151,127
                    )
                    
                    
                    (366,587
                    )Payments
      on deferred retirement benefits
                    
                    
                    (58,471
                    )
                    
                    
                    (55,153
                    )Net
      Cash Flows from Operating Activities
                    
                    
                    (769,576
                    )
                    
                    
                    (1,045,719
                    )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of property and equipment
                    
                    
                    (365,564
                    )
                    
                    
                    (273,553
                    )Proceeds
      from sale of property and equipment
                    
                    
                    -
                    
                    
                    
                    163,689Purchase
      of assets associated with Castaic Softbait Brand
                    
                    
                    (340,641
                    )
                    
                    
                    -Purchase
      of assets from MarCum Technologies
                    
                    
                    (759,521
                    )
                    
                    
                    -Purchase
      of assets from Innovative Outdoors
                    
                    
                    (10,753
                    )
                    
                    
                    -Purchase
      of Cass Creek assets, net of cash received and promissory
    note
                    
                    
                    -
                    
                    
                    
                    (2,100,832
                    )Purchase
      of Fish Hawk assets, net of inventory payment and promissory
      note
                    
                    
                    -
                    
                    
                    
                    (154,331
                    )Proceeds
      from sale of building
                    
                    
                    2,294,941
                    
                    
                    
                    -Proceeds
      from sale of life insurance policies
                    
                    
                    -
                    
                    
                    
                    148,310Proceeds
      from sale of discontinued operations, net
                    
                    
                    243,345
                    
                    
                    
                    444,629Payments
      received on note receivable
                    
                    
                    -
                    
                    
                    
                    300,000Net
      proceeds from sale of working capital associated with discontinued
      operations
                    
                    
                    317,461
                    
                    
                    
                    2,359,683Purchases
      of intangible assets
                    
                    
                    (11,796
                    )
                    
                    
                    -Net
      Cash Flows from (used in) Investing Activities
                    
                    
                    1,367,472
                    
                    
                    
                    887,595CASH
      FLOWS FROM FINANCING ACTIVITIESIncrease
      (decrease) in checks issued in excess of cash in bank
                    
                    
                    131,119
                    
                    
                    
                    (71,394
                    )Net
      receipts (payments) on line of credit, bank
                    
                    
                    1,200,486
                    
                    
                    
                    (1,050,000
                    )Proceeds
      from current note payable
                    
                    
                    -
                    
                    
                    
                    2,000,000Principal
      payments on long-term debt
                    
                    
                    (2,060,988
                    )
                    
                    
                    -Cash
      received on exercise of options
                    
                    
                    -
                    
                    
                    
                    77,613Payments
      on contract payable
                    
                    
                    -
                    
                    
                    
                    (762,231
                    )Net
      Cash Flows from (used in) Financing Activities
                    
                    
                    (729,383
                    )
                    
                    
                    193,988Net
      Change in Cash and Cash Equivalents
                    
                    
                    (131,487
                    )
                    
                    
                    35,864CASH
      AND CASH EQUIVALENTS - January 1, 2008 and 2007
                    
                    
                    131,487
                    
                    
                    
                    2,344CASH
      AND CASH EQUIVALENTS – September 30, 2008 and 2007
                    
                    $
                    -
                    
                    
                    $
                    38,208
 
 See
accompanying notes to consolidated financial statements.
  3
 Index
  NATURE
VISION, INC. AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2008 and 2007 (Unaudited)
 
 NOTE 1 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 NATURE OF
OPERATIONS
  Nature
Vision, Inc. (the Company or we) is an outdoor recreation products
Company.  The Company designs and markets primarily outdoor recreation
products for the sport fishing and sport hunting markets.  The Company
grants unsecured credit to its customers which are primarily retailers, 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 Canada and, to a lesser extent some
foreign countries.
  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 assets and liabilities of Vaddio at
September 30, 2008 and December 31, 2007 met the requirements of Financial
Accounting Standards Board (FASB) 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 were eliminated as a result of
the sale and the Company did not have any significant involvement in the
operations after the sale. 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.
 
 LIQUIDITY
 
 We
incurred a net loss for the nine months ended September 30, 2008 and 2007 of
approximately $1,499,000 and $2,130,000, respectively.
 
 On April
7, 2008, the Company completed the sale of its facility located in New Hope, MN
(see Note 1).
 
 On July
8, 2008, the Company amended its $1,000,000 related party note with a Board
Member, extending the notes due date to June 30, 2010 (see Note 6).
 
 On
October 27, 2008, the Company borrowed $700,000 from the Company’s Chief
Executive Officer that matures on January 1, 2009 (see Note 14).
 
 Management
believes that existing positive working capital, additional cash generated from
operations during the fourth quarter, available lending capacity from the bank
line of credit, and the infusion of cash from subordinated debt, will supply
sufficient cash flow to fund operating activities and capital expenditures as
well as meet debt service obligations for at least the next twelve
months.
 
 In the
event future cash flows and borrowing capacities are not sufficient to fund
operations at the present level, additional measures will be taken including a
reduction in operating and capital expenditures.  In addition, we believe
that other sources of liquidity are available which may include additional
subordinated debt, and raising additional capital.  However, there is no
assurance that these other sources of liquidity will be available or on terms
acceptable to the Company.
 
 INTERIM
FINANCIAL INFORMATION
  The
accompanying consolidated balance sheet at September 30, 2008, and the
consolidated statements of operations and cash flows for the nine months and
three months ended September 30, 2008 and 2007, are unaudited. The unaudited
interim consolidated balance sheet and consolidated statements of operations,
and cash flows have been prepared in accordance with accounting principles
generally accepted in the United States of America and, in the opinion of
management, reflect all adjustments, which include only normal recurring
adjustments, necessary to present fairly the Company's financial position,
results of operations and its cash flows for the nine months and three months
ended September 30, 2008 and 2007. The financial data and other information
disclosed in these notes to the consolidated financial statements related to
these periods are unaudited.  Because of seasonal and other factors,
operating results for the nine months and three months ended September 30, 2008
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2008. The consolidated financial statements should be read
in conjunction with the audited financial statements for the year ended December
31, 2007 included in the Annual Report on Form 10-KSB of the Company filed with
the Securities and Exchange Commission.
  4
 Index
  PRINCIPLES
OF CONSOLIDATION
  The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant inter-company transactions and
balances have been eliminated in consolidation.
  INVENTORIES
  Inventories
consist of raw materials 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. Management
periodically reviews 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 sometimes difficult to make and it is possible
significant changes may be required to inventory reserves.
  IMPAIRMENT
OF LONG-LIVED ASSETS
  We assess
the impairment of long-lived assets whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable, in accordance with
FASB SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets.”  An asset or asset group is considered impaired if its
carrying amount exceeds the undiscounted future net cash flow the asset or asset
group is expected to generate.  If an asset or asset group is
considered impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceeds its fair value.  If
estimated fair value is less than the book value, the asset is written down to
the estimated fair value and an impairment loss is recognized.
 
 If we
determine that the carrying amount of long-lived assets, including intangible
assets, may not be recoverable, we measure any impairment based on a projected
discounted cash flow method using a discount rate determined by our management
to be commensurate with the risk inherent in our current business model or
another valuation technique.  Net intangible assets and long-lived
assets amounted to $3.6 million as of September 30, 2008.
 
 Considerable
management judgment is necessary in estimating future cash flows and other
factors affecting the valuation of long-lived assets, including intangible
assets, including the operating and macroeconomic factors that may affect
them.  We use historical financial information, internal plans, and
projections and industry information in making such estimates.
 
 We did
recognize impairment charges (included in cost of goods sold) for our long-lived
assets, including intangible assets during the nine months ended September 30,
2008 and 2007 of $28,180 and $0.  While we currently believe the
expected cash flows for the Company’s remaining long-lived assets, including
intangible assets, exceeds the carrying amount, materially different assumptions
regarding future performance and discount rates could result in future
impairment losses.  In particular, if we no longer believe we will
achieve our long-term projected sales or operating expenses, we may conclude in
connection with any future impairment tests that the estimated fair value of our
long-lived assets, including intangible assets, are less than the book value and
recognize an impairment charge.  Such impairment would adversely
affect our earnings.
  DISCONTINUED
OPERATIONS
 
 On
February 5, 2007, the Company sold certain assets and transferred certain
liabilities related to its Vaddio division.
 
 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
were eliminated as a result of the sales and the Company did not have any
significant involvement in the operations after the sales. The results of the
Vaddio product line is presented on a historical basis as a separate line in the
consolidated statements of operations and the consolidated balance sheets
entitled “Assets/Liabilities retained relating to discontinued operations”. In
accordance with Emerging Issues Task Force (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).
  5
 Index
  BUILDING
AND LAND HELD FOR SALE
  In
November 2006, management signed an agreement and began marketing for sale the
building and land located in New Hope, Minnesota. As a result, we discontinued
recording depreciation on the building in the fourth quarter of the year ended
December 31, 2006. Accordingly,
we reflected the carrying value of the building as held for sale as of and
December 31, 2007.  On April 7, 2008, the Company sold its facility
located in New Hope, Minnesota. Under the terms of the Agreement, the Buyer
purchased from the Company the real property, building, improvements and certain
personal property for a purchase price of approximately
$2,400,000.  The Company recorded a gain of $998,950 ($1,593,222
pretax gain less income taxes of $594,272) that is included in gain from
discontinued operations for the nine months ended September 30,
2008.  The Company used $1,917,000 of the proceeds from the sale to
pay off the mortgage loan with M&I Business Credit, LLC with the remainder
used for general working capital purposes.
 
 GOODWILL
AND INTANGIBLE ASSETS
  The
Company applies SFAS No. 142, “Goodwill and Other Intangible Assets,” which sets
forth financial and reporting standards for the acquisition of intangible
assets, other than those acquired in a business combination, and for goodwill
and other intangible assets subsequent to their acquisition.  This
accounting standard requires that goodwill no longer be amortized but tested for
impairment on a periodic basis.  Goodwill is subject to an impairment
test in the fourth quarter of each year.  The balance of goodwill
related to the Cass Creek International, LLC (Cass Creek) and Fish Hawk
Electronics (Fish Hawk) acquisitions (Note 2) and which combined totaled
$666,373 at September 30, 2008 and December 31, 2007.
 
 Other
intangible assets consisted primarily of patents and identifiable intangible
assets including customer lists, other intellectual property and non-compete
agreements, which are being amortized using the straight-line method over their
estimated useful lives ranging from three to nineteen years.
 
 The
long-term portion of prepaid expenses consists of deferred financing costs of
$36,183 and $47,468 at September 30, 2008 and December 31, 2007,
respectively.
 
 If
circumstances change, the estimates of fair value will also change and could
necessitate an impairment charge that reduces the carrying value of goodwill or
intangible assets.  Management considered whether the loss from
continuing operations constituted a triggering event to assess impairment of
goodwill and/or identifiable intangible assets, however, based on the
seasonality of the Company’s sales cycle and growth initiatives, management
believes that it is too early to assess if the unfavorable conditions are
short-term in nature that will be recovered in the future.  Thus
management believes a triggering event has not occurred.  The Company
is in the process of evaluating its forward projections and growth initiatives
in light of the current economic conditions which are scheduled to be completed
in the fiscal fourth quarter.  If any impairment is identified, the
related adjustment to goodwill and/or other identifiable intangible assets will
be recorded against fourth quarter operations and may or may not be
material.
 
 REVENUE
RECOGNITION
  The
Company recognizes revenue on the date products are shipped to customers and
does not sell products with the guaranteed right of return.  The
Company maintains a warranty on new products up to one year from the date of
retail purchase and therefore permits returns for defective product within the
first few months of purchase and repairs products up through the end of the
warranty period. Estimated reserves for sales / warranty returns are established
by management based on historical experience and are subject to ongoing review
and adjustment by the Company. Sales are reported net of the provision for
actual and estimated future returns and net of discounts and allowances in the
accompanying consolidated statements of operations.  The Company’s
revenue is recognized in accordance with generally accepted accounting
principles as outlined in the Securities and Exchange Commission’s (SEC) 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.
  6
 Index
  In June
2006, the FASB ratified the consensus of EITF Issue No. 06-3, “How Taxes Collected from Customers
and Remitted to Governmental Authorities Should Be Presented in the Income
Statement (That Is, Gross versus Net Presentation)” (EITF 06-3). EITF
06-3 concluded that the presentation of taxes imposed on revenue-producing
transactions (sales, use, value added, and excise taxes) on either a gross
(included in revenues and costs) or a net (excluded from revenues) basis is an
accounting policy that should be disclosed. The Company adopted EITF 06-3 during
the year ended December 31, 2007, and it did not have any impact on our results
of operations or financial condition.  The Company's policy is to
present taxes imposed on revenue-producing transactions on a net
basis.
  SALES AND
WARRANTY RESERVE
  The
Company has established a sales and warranty reserve for sales returns and
warranty costs. 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 sales and
warranty reserve for sales returns and warranty costs relating to continuing
operations was $215,000 and $300,000 at September 30, 2008 and December 31,
2007, respectively. The sales and warranty reserve represents a significant
estimate and actual results could differ from the estimate. The following table
provides the activity through the returns and warranty accounts as recorded and
charged against the reserve relating to continuing operations for the nine
months ended September 30, 2008 and 2007.
   2008
                    
                    
                    2007Accrued
      balance - beginning
                    
                    $
                    300,000
                    
                    
                    $
                    175,000Provision
                    
                    
                    494,000
                    
                    
                    
                    1,000,000Claims
      incurred
                    
                    
                    (579,000
                    )
                    
                    
                    (950,000
                    )Accrued
      balance - ending
                    
                    $
                    215,000
                    
                    
                    $
                    225,000
 
 RESEARCH
AND DEVELOPMENT
  The
Company expenses all costs related to product research and development as
incurred.
  STOCK-BASED
COMPENSATION
  EffectiveJanuary 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 periods endedJune 30, 2008and 2007 includes compensation cost
for all options granted prior to, but notvested as ofJanuary 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 toJanuary 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 nine months ended September 30, 2008 and
2007.
 
 The
following assumptions were used to calculate the value of the options granted
during the nine months ended September 30, 2008: dividend yield of 0%, risk-free
interest rate of 3%, expected life equal to 3.5 years – 5 years, and volatility
of 76% - 106%.  The following are the assumptions used for the
Black-Scholes model:
 
 ·
              The
      Company calculates expected volatility for stock options and awards using
      historical volatility.
 ·
              The
      Company used 0% as a forfeiture rate and the Company does not consider
      forfeitures to be material.
  7
 Index
  ·
              The
      Company has not, and does not intend to, issue dividends; therefore, the
      dividend yield assumption is 0%.
 ·
              The expected term of options is
      based on the simplified method as allowed under Staff Accounting Bulletins
      (SAB) No’s. 107 and 110 issued by the SEC.  The simplified
      method assumes the option will be exercised midway between the vesting
      date and the contractual term of the option.  The Company is
      able to use the simplified method as the options qualify as “plain
      vanilla” options as defined by SAB No. 107 and since the Company does not
      have sufficient historical exercise data to provide a reasonable basis to
      estimate expected term.
 ·
              The risk-free rates for the
      expected terms of the stock options and awards are based on the U.S.
      Treasury yield curve in effect at the time of
  grant.
  The
Company recognizes stock-based compensation costs on a straight-line basis over
the requisite service period of the award, which is generally the option vesting
term.  As of September 30, 2008, there was $31,043 of total
unrecognized compensation costs related to the outstanding options, which is
expected to be recognized over a period of 36 months.
 
 The
weighted average fair value of stock options granted on the date of grant during
the nine months ended September 30, 2008 was $.82.
 
 Stock
options issued to non-employees (which no options were issued to non-employees),
are accounted for in accordance with EITF 96-18.
  NET 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 no dilutive common stock equivalents, options and
warrants, for the nine months and three months ended September 30, 2008 and
2007. Anti-dilutive options and warrants were 339,450 and 99,450 at September
30, 2008 and 2007, 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.
 
 We are
required to assess the likelihood that our deferred tax assets will be recovered
from future taxable income, and to the extent that we believe that recovery is
not likely, we must establish a valuation allowance. To the extent we establish
a valuation allowance, we must include an expense within the tax provision of
the consolidated statement of operations in each period in which the allowance
is increased.
 
 During
the third quarter of 2008, we increased our valuation allowance for the entire
amount of our deferred tax assets, due to the uncertainties surrounding our
ability to utilize some or all of our deferred tax assets. The increase in the
valuation allowance resulted in $428,274 income tax expense for the three and
nine months ended September 30, 2008.
 
 If the
realization of the deferred tax assets in the future is considered more likely
than not, an adjustment to the deferred tax assets would increase net income in
the period such determination is made. The establishment of the valuation
allowance does not impair our ability to use the deferred tax assets upon
achieving profitability.
 
 The
Company adopted the provisions of FASB Interpretation No. 48, or FIN 48, Accounting for Uncertainty in Income
Taxes - an
interpretation of FASB Statement No. 109on January 1, 2007.  FIN 48
prescribes comprehensive guidelines for recognizing, measuring, presenting and
disclosing in the financial statements tax positions taken or expected to be
taken on tax returns.  As a result of the implementation of FIN 48, the
Company reclassified $400,000 of deferred tax liabilities to unrecognized tax
benefits with no impact to previously recorded retained earnings.  The
amount of the unrecognized tax benefits adjusted the net operating loss
carryforward for federal purposes by approximately $1,000,000.  To the
extent interest and penalties would be assessed by taxing authorities on any
underpayment of income taxes, such amounts would be accrued and classified as a
component of income tax expenses on the consolidated statement of operations.
The Company has no material amount of accrued liabilities for interest or
penalties recorded related to unrecognized tax benefits.  The federal and
state tax returns are open to examination for the years
2005-2007.
  8
 Index
  ESTIMATES
  The preparation of financial statements
in conformity with accounting principles generally accepted in theUnited States of Americarequires 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 revenuesand 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
December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
Combinations” (“SFAS No. 141(R)”), the objective of SFAS No. 141(R) is to
improve the information provided in financial reports about a business
combination and its effects. SFAS No. 141(R) requires an acquirer to recognize
the assets acquired, the liabilities assumed, and any noncontrolling interest in
the acquiree at the acquisition date, measured at their fair values as of that
date. SFAS No. 141(R) also requires the acquirer to recognize and measure the
goodwill acquired in a business combination or a gain from a bargain purchase
and provides guidance on how to evaluate the nature and financial effects of the
business combination. SFAS No. 141(R) will be applied on a prospective basis for
business combinations where the acquisition date is on or after the beginning of
the Company’s 2009 fiscal year.
  In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements-an amendment of Accounting Research Bulletin
(ARB) No. 51”. The objective of SFAS No. 160 is to improve the financial
information provided in consolidated financial statements. SFAS No. 160 amends
ARB No. 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 also changes the way the consolidated income statement
is presented, establishes a single method of accounting for changes in a
parent’s ownership interest in a subsidiary that do not result in
deconsolidation, requires that a parent recognize a gain or loss in net income
when a subsidiary is deconsolidated, and expands disclosures in the consolidated
financial statements in order to clearly identify and distinguish between the
interests of the parent’s owners and the interest of the noncontrolling owners
of a subsidiary. SFAS No. 160 is effective for the Company’s 2009 fiscal year.
The Company does not anticipate that SFAS No. 160 will have any material impact
on its consolidated financial statements.
 
 In May
2008, the FASB released SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.”   SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that presented
in conformity with generally accepted accounting principles in the United States
of America. SFAS No. 162 will be effective 60 days following the SEC’s approval
of the PCAOB amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.  The Company
does not believe SFAS 162 will have a significant impact on the Company’s
consolidated financial statements.
  NOTE 2 –
ACQUISITIONS
 
 Innovative
Outdoors asset acquisition
 
 On June
27, 2008, the Company closed on the acquisition of certain assets of Innovative
Outdoors, Inc. (Innovative Outdoors) a manufacturer and distributor of ice
fishing hole covers and other related devices, pursuant to the terms of an asset
purchase agreement. The transaction involved the acquisition by Nature Vision of
tooling, intellectual property, and general intangibles of Innovative Outdoors
for a purchase price of $188,572.  The purchase price was paid as
follows: (i) $6,000 cash was paid at closing, (ii) $32,572 by a two year
unsecured promissory note payable in monthly installments of $1,458 including
imputed interest at 7%, and (iii) $150,000 by a three year unsecured promissory
note payable in monthly installments of $4,632 including interest at
7%.  In connection with the acquisition, the Company incurred
transaction costs of $4,753.This purchase allows the Company to become
vertically integrated by purchasing the intellectual property of an existing
sales product line.  The assets acquired and liabilities assumed in
the acquisition are based on their value estimated at the date of
acquisition.  These estimates if necessary will be revised during the
allocation period, which generally does not exceed one
year.  Additional pro forma disclosures required under SFAS No. 141
“Business Combinations”, related to this acquisition were not considered
material.
  9
 Index
  MarCum
Technologies asset acquisition
 
 On April
30, 2008, the Company closed on the acquisition of certain assets of MarCum
Technologies, Inc. (Marcum), a manufacturer and distributor of electronic sonar
and underwater camera devices, pursuant to the terms of an asset purchase
agreement.  The transaction involved the acquisition by Nature Vision
of select equipment, inventories, intellectual property, and general intangibles
of Marcum for a purchase price of $721,080, of which $650,000 was paid at
closing and the remaining $71,080 was paid in June 2008 as part of the inventory
adjustment.  In connection with the acquisition, the Company incurred
transaction costs of $38,441.  The assets acquired in the acquisition
are based on the fair value estimates at the date of the
acquisition.  These estimates, if necessary, will be revised during
the allocation period, which generally does not exceed on year.  The
purchase provides the Company with an expanded fishing platform and a strong
intellectual property platform to develop new products.
 
 The
purchase price allocation for the MarCum asset acquisition is as
follows:
 
 Inventories
                
                
                196,080Equipment
                
                
                165,500Intangibles*
                
                
                397,941Total
      purchase price
                
                $
                759,521
 
 *Intangibles
consists of $227,941 in intellectual property and related patents (useful life
of 7 years), $100,000 in non-compete (useful life of 3 years), $50,000 in
trademarks (useful life of 5 years), and $20,000 in customer list (useful life
of 3 years).
 
 Castaic Softbait
brand acquisition
 
 On
January 21, 2008, the Company acquired substantially all of the assets
associated with the Castaic Softbait brand under an asset purchase
agreement.  The amount of $323,100 was paid at closing, $81,750 is
payable pursuant to three year promissory notes, and $82,860 of liabilities were
assumed.  The Company incurred transaction costs of $17,541 in
connection with the acquisition. The purchase provides the Company with a proven
fishing tackle product platform.The
assets acquired and liabilities assumed in the acquisition are based on their
value estimated at the date of acquisition.  These estimates if
necessary will be revised during the allocation period, which generally does not
exceed one year.  Additional pro forma disclosures required under SFAS
No. 141 “Business Combinations”, related to this acquisition were not considered
material.
 
 In April
2008, the Company purchased a Maquiladora operation in Mexico for a nominal
amount.  The plant manufactures fishing tackle associated with the
Castaic Softbait brand.
 
 Cass
Creek Acquisition
  On
September 20, 2007, Nature Vision closed on the acquisition of substantially all
of the assets of Cass Creek, a manufacturer and distributor of electronic game
calling devices, pursuant to the terms of an asset purchase
agreement.  The transaction involved the acquisition of equipment,
inventories, intellectual property, books and records, permits, licenses,
accounts receivable, cash, goodwill, general intangibles and certain other
assets of Cass Creek for a total purchase price of approximately $2,600,000. The
purchase price was paid as follows: (i) $1,560,000 cash was paid at closing,
(ii) $386,000 by the assumption of an existing line of credit for Cass Creek
that was paid off, by the Company upon closing, and (iii) $500,000 by a five
year unsecured promissory note payable in annual installments of $100,000 of
principal plus interest accrued at 8% per annum.  In connection with
the acquisition, the Company incurred transaction costs of $167,036. The assets
acquired and liabilities assumed in the acquisition are based on their value
estimates at the date of acquisition.  The assets and liabilities were
recorded at fair value pursuant to SFAS No. 141.  The purchase
provides the Company with an expanded hunting platform and is intended to smooth
the seasonal sales cycle.  The goodwill is deductible for tax purposes
over 15 years.
 
 In order
to fund the acquisition, the Company borrowed $2,000,000 from M&I Business
Credit, LLC (“M&I”) under the terms of a Demand Term Note dated September
19, 2007 in the principal amount of $2,000,000. The amount borrowed was payable
upon demand and bore interest at an annual rate of .75% per annum above the
prime rate of interest publicly announced by M&I Bank. If not sooner
demanded, principal on the Demand Term Note was due and payable in equal
consecutive monthly installments of $16,677, commencing on November 1, 2007 and
continuing until April 1, 2008.  In connection with the sale of the
facility in New Hope, Minnesota on April 7, 2008, this note was paid in full
(See Note 1).
  10
 Index
  In
connection with the financing of the Cass Creek acquisition, on September 20,
2007, the Company granted a non-qualified stock option for the purchase of
33,000 shares of its common stock at an exercise price of $2.10 per share to the
Company’s Chief Executive Officer, in consideration of his personal guarantee of
the payment of the demand term note (Note 8) and the promissory note payable
(Note 8).  The fair value of the options granted (associated with debt
guarantee) was calculated at $50,256 using the Black-Scholes model and are
included in long-term prepaid expenses on the balance sheet and will be
amortized over the life of the guarantee. The following assumptions were used to
calculate the value of the options: dividend yield of 0%, risk-free interest
rate of 5%, expected life equal to 6 years, and volatility of 81%.
  Fish
Hawk Acquisition
 
 On July
3, 2007, the Company purchased substantially all the assets of Fish Hawk
Electronics Corporation, for $323,310.  The amount of $100,000 was
paid at closing, $68,979 was due and paid in October 2007, and $100,000 is
payable pursuant to a three year promissory note.  In addition, the
Company incurred transaction costs of $54,331 in connection with the
acquisition. The note bears interest at 8% and requires annual principal
payments of $33,333, plus interest at 8% through July 2010.  The
purchase provides the Company with downrigger display technology that
complements its Vector line of downrigger trolling products.  In
Connection with this transaction, the Company expensed in process research and
development of $15,000 during the year ended December 31, 2007.  The
goodwill is deductible for tax purposes over 15 years. The pro forma results of
operations for Fish Hawk Electronics Corporation are not included as of January
1, 2007 as they were not considered material.
  The
results of Cass Creek, Fish Hawk, MarCum, Innovative Outdoors, and
Castaic Softbait brand have been included in the consolidated financial
statements since the date of the acquisitions.  The following
un-audited pro forma condensed results of operations for the nine months and
three months ended September 30, 2008 and September 30, 2007 give effect to the
acquisitions of MarCum and Cass Creek as if such transaction had occurred on
January 1, 2007.  The unaudited pro forma information does not purport
to represent what the Company's results of operations would actually have been
if such transaction in fact had occurred at such date or to project the
Company's results of future operations.
 
 For the
nine months ended September 30, 2008 and 2007:
   September
      30, 2008
                    
                    September
      30, 2007As
      reported
                    
                    Pro
      forma
                    
                    As
      reported
                    
                    Pro
      formaNet
      sales
                    
                    $
                    6,017,084
                    
                    
                    $
                    6,261,373
                    
                    
                    $
                    4,052,631
                    
                    
                    $
                    5,467,462Loss
      from continuing operations
                    
                    
                    (2,917,363
                    )
                    
                    
                    (3,217,912
                    )
                    
                    
                    (2,221,765
                    )
                    
                    
                    (1,791,963
                    )Gain
      from discontinued operations
                    
                    
                    1,418,609
                    
                    
                    
                    1,418,609
                    
                    
                    
                    91,715
                    
                    
                    
                    91,715Net
      loss
                    
                    
                    (1,498,754
                    )
                    
                    
                    (1,799,303
                    )
                    
                    
                    (2,130,050
                    )
                    
                    
                    (1,700,248
                    )Loss
      per common share:Basic
                    
                    $
                    (.65
                    )
                    
                    $
                    (.78
                    )
                    
                    $
                    (.93
                    )
                    
                    $
                    (.75
                    )Diluted
                    
                    $
                    (.65
                    )
                    
                    $
                    (.78
                    )
                    
                    $
                    (.93
                    )
                    
                    $
                    (.75
                    )
 
 For the
three months ended September 30, 2008 and 2007:
 
 
 September
      30, 2008
                  
                  September
      30, 2007As
      reported
                  
                  Pro
      forma
                  
                  As
      reported
                  
                  Pro
      formaNet
      sales
                  
                  $
                  2,199,853
                  
                  
                  $
                  2,199,853
                  
                  
                  $
                  1,528,700
                  
                  
                  $
                  2,108,164Loss
      from continuing operations
                  
                  
                  (1,284,276
                  )
                  
                  
                  (1,284,276
                  )
                  
                  
                  (485,687
                  )
                  
                  
                  (441,096
                  )Gain
      from discontinued operations
                  
                  
                  303,804
                  
                  
                  
                  303,804
                  
                  
                  
                  (43,482
                  )
                  
                  
                  (43,482
                  )Net
      income (loss)
                  
                  
                  (980,472
                  )
                  
                  
                  (980,472
                  )
                  
                  
                  (529,169
                  )
                  
                  
                  (484,578
                  )Income
      (loss) per common share:Basic
                  
                  $
                  (.42
                  )
                  
                  $
                  (.42
                  )
                  
                  $
                  (.23
                  )
                  
                  $
                  (.21
                  )Diluted
                  
                  $
                  (.42
                  )
                  
                  $
                  (.42
                  )
                  
                  $
                  (.23
                  )
                  
                  $
                  (.21
                  )
  11
 Index
  NOTE 3 -
INVENTORIES
  Inventories
consisted of the following at:
 
 September
      30,
                    2008
                  
                  
                  December
      31,
                    2007Raw
      Materials
                  
                  $
                  2,938,196
                  
                  
                  $
                  1,953,000Finished
      Goods
                  
                  
                  2,803,501
                  
                  
                  
                  3,011,510Total
                  
                  
                  5,741,697
                  
                  
                  
                  4,964,510Less:
      Valuation Allowance
                  
                  
                  (175,000
                  )
                  
                  
                  (194,862
                  )Inventories,
      net
                  
                  $
                  5,566,697
                  
                  
                  $
                  4,769,648
 
 NOTE 4 -
PROPERTY AND EQUIPMENT
  Property
and equipment consisted of the following at:
 
 September
      30,
                    2008
                  
                  
                  December
      31,
                    2007Tooling
                  
                  $
                  1,544,477
                  
                  
                  $
                  1,268,868Office
      furniture and equipment
                  
                  
                  549,809
                  
                  
                  
                  459,586Warehouse
      equipment
                  
                  
                  435,588
                  
                  
                  
                  305,724Vehicles
                  
                  
                  27,697
                  
                  
                  
                  20,279Leasehold
      improvements
                  
                  
                  313,675
                  
                  
                  
                  256,750Construction
      in progress
                  
                  
                  145,813
                  
                  
                  
                  106,717Total
                  
                  
                  3,017,059
                  
                  
                  
                  2,417,924Less:
      Accumulated depreciation
                  
                  
                  (1,027,292
                  )
                  
                  
                  (862,872
                  )Net
                  
                  $
                  1,989,767
                  
                  
                  $
                  1,555,052
  12
 Index
  NOTE 5 -
INTANGIBLES
 
 Schedule
of Intangible Assets at September 30:
 
 2008Gross
                      Amount
                    
                    Accumulated
                      Amortization
                    
                    Net
      Value
                      at
      September 30, 2008Intangible
      assets subject to amortization:Trademarks
                    
                    $
                    214,235
                    
                    
                    $
                    39,684
                    
                    
                    $
                    174,551Non-compete
                    
                    
                    337,420
                    
                    
                    
                    74,782
                    
                    
                    
                    262,638Customer
      lists
                    
                    
                    580,000
                    
                    
                    
                    113,833
                    
                    
                    
                    466,167Intellectual
      property and related patents
                    
                    
                    838,961
                    
                    
                    
                    121,710
                    
                    
                    
                    717,251Other
                    
                    
                    2,000
                    
                    
                    
                    255
                    
                    
                    
                    1,745Totals
                    
                    $
                    1,972,616
                    
                    
                    $
                    350,264
                    
                    
                    $
                    1,622,352
 
 
 Schedule
of Intangible Assets at December 31:
 
 2007Gross
                      Amount
                    
                    Accumulated
                      Amortization
                    
                    Net
      Value
                      at
      December 31, 2007Intangible assets subject to
      amortization:Trademarks
                    
                    $
                    109,234
                    
                    
                    $
                    13,873
                    
                    
                    $
                    95,361Non-compete
                    
                    
                    206,420
                    
                    
                    
                    28,080
                    
                    
                    
                    178,340Customer
      lists
                    
                    
                    540,000
                    
                    
                    
                    27,333
                    
                    
                    
                    512,667Intellectual
      property and related patents
                    
                    
                    319,865
                    
                    
                    
                    51,332
                    
                    
                    
                    268,533Other
                    
                    
                    2,000
                    
                    
                    
                    155
                    
                    
                    
                    1,845Totals
                    
                    $
                    1,177,519
                    
                    
                    $
                    120,773
                    
                    
                    $
                    1,056,746
 
 
 NOTE 6 –
RELATED PARTY NOTE PAYABLE AND WARRANTS
 
 On
October 19, 2007, the Company borrowed $1,000,000 from a member of its Board of
Directors in order to meet its short-term cash flow requirement. This demand
promissory note was unsecured and had an interest rate of 15% (55.8% effective
rate by including fair value of warrants amortized over a three month term).
Interest was payable on the first day of each month, commencing on December 1,
2007. The entire principal and accrued interest was payable upon demand anytime
after January 19, 2008. In connection with the loan, the Company issued warrants
to the Director to purchase 100,000 shares of common stock at an exercise price
of $2.21. The warrants are exercisable from October 19, 2007 through October 19,
2009. The fair value of the warrants was calculated at $102,010 using the Black
Scholes model. The following assumptions were used to calculate the value of the
warrants: dividend yield of 0%, risk free interest of 5%, expected life to two
years, and volatility of 81%. The resulting original issue discount, the fair
value of the warrants, was being amortized over the life of the debenture using
the straight-line method.  Amortization expense on the original issue
discount was $20,841 for the nine months ended September 30, 2008 and is
included in interest expense.
  13
 Index
  On July
8, 2008, the Company amended the terms and replaced the original demand note
issued to the member of its Board of Directors on October 19,
2007.  The amended demand note is held by the same member of the
Company’s Board of Directors.  The demand promissory note is unsecured
and bears an interest rate of 15% (20% effective rate including new warrants
issued to the Director and amortized over a two year term).  Interest
is payable on the first day of each month commencing on August 1,
2008.  The entire principal and interest is payable upon demand
anytime after June 30, 2010.  In connection with the new loan, the
Company issued additional warrants to the Director to purchase 100,000 shares of
common stock at an exercise price of $1.31.  The warrants are
exercisable from July 8, 2008 to June 30, 2013.  The fair value of the
warrants was calculated at $100,300 using the Black Scholes
model.  The following assumptions were used to calculate the value of
the warrants: (i) dividend yield of 0%, risk free interest of 3.34%, expected
life of 5 years, and volatility of 103%.  The resulting original issue
discount, the fair value of the warrants, will be amortized over the life of the
debenture using the straight-line method.  Amortization expense on the
original issue discount was $12,538 for the nine months and three months ended
September 30, 2008 and is included in interest expense.  The note
payable is subordinate to the bank notes (see notes 7 and 8).
 
 NOTE 7 -
LINE OF CREDIT, BANK
 
 On
November 8, 2007, the Company entered into a line of credit agreement, a demand
note, with M&I Bank for up to a maximum amount of
$6,000,000.  Interest is payable monthly at the greater of 6.0% or
prime plus .75% (6.00% at September 30, 2008).  Subsequent to
September 30, 2008 an amendment was made to the line of credit agreement
changing the interest from prime plus .75% to one month LIBOR plus 3.75% with a
minimum interest rate of 5.25% effective December 1, 2008.  The line
of credit is collateralized by accounts receivable, inventories, property and
equipment, and other assets of the Company.  The facility is based on
the following borrowing base restrictions, 75% of eligible accounts receivable
and 50% of eligible inventories. Effective from August 1, 2008 through October
31, 2008 the Company received an over advance amount of $600,000 in order to
assist the Company with meeting it’s short term cash flow requirements. In
connection with this agreement, the Company is required to pay an annual line
fee of $45,000 and minimum interest of $120,000 on an annual
basis.  The balance outstanding on the line of credit was $3,738,321
and $2,537,835 at September 30, 2008 and December 31, 2007,
respectively.  The line of credit facility is considered a demand type
loan and henceforth does not have a maturity date.
 
 The terms
of the credit agreement are written such that the line will stay in place for up
to three years if the Company can satisfactorily perform within certain
covenants outlined by the bank.  The agreement required the Company to
be in compliance with the following affirmative covenants as of September 30,
2008:  minimum stockholders' equity annual increases of $100,000 year
over year during the duration of the agreement, minimum net worth (including
subordinated debt) of $5,500,000 and minimum tangible net worth of
$2,200,000.   The Company did not meet the minimum net worth and
tangible net worth covenants as of September 30, 2008, but has received a
noncompliance waiver from M&I Bank.
  14
 Index
  NOTE 8 -
LONG-TERM DEBT
 
 Long-term
debt consisted of the following at:
 
 September
      30,
                    2008
                  
                  
                  December
      31,
                    2007Unsecured
      Promissory Note – Cass Creek – monthly installments of approximately
      $10,000  from September 2008 through March 2010, then annual
      installments of approximately $100,000 beginning September 2010 through
      September 2012, all payments include interest at 8% , guaranteed by the
      CEO of the Company.
                  
                  $
                  490,000
                  
                  
                  $
                  500,000Unsecured
      Note Payable – Fish Hawk -  annual installments of $33,333 plus
      interest at 8% from July 2008 through July 2010
                  
                  
                  66,667
                  
                  
                  
                  100,000Demand
      Term Note – M&I Business Credit, LLC - Paid in full on April 7, 2008
      in connection with the sale of the building.
                  
                  
                  -
                  
                  
                  
                  2,000,000Unsecured
      Note Payable – Castaic -  annual installments of $17,171,
      including interest at 8%, from January 2009 through January
      2011
                  
                  
                  44,250
                  
                  
                  
                  -Unsecured
      Note Payable – Castaic -  monthly installments of $1,175,
      including interest at 8%, from February 2008 through January
      2011
                  
                  
                  29,924
                  
                  
                  
                  -Unsecured
      Note Payable – monthly installments of $1,458, including interest at 7%,
      from August 2008 through July 2010
                  
                  
                  30,028
                  
                  
                  
                  -Unsecured Note Payable –
      Innovative Outdoors – monthly installments of $4,632, including interest
      at 7% from August 2008 through July 2011
                  
                  
                  142,465Unsecured
      Note Payable –Northern Pacific Center– payable in full on
      December 31, 2008 plus interest at 7%
                  
                  
                  46,054
                  
                  
                  
                  -Totals
                  
                  
                  849,388
                  
                  
                  
                  2,600,000Less:
      Current portion
                  
                  
                  289,540
                  
                  
                  
                  2,133,333Net
      Long-Term Debt
                  
                  $
                  559,848
                  
                  
                  $
                  466,667
 
 
 Future
maturities of long-term debt for years ending after September 30, 2008 are as
follows:
 
 TotalYear
      ending September 30:2009
                  
                  $
                  289,5402010
                  
                  
                  294,4632011
                  
                  
                  165,3852012
                  
                  
                  100,0002013
                  
                  
                  -Total
      Long-Term Debt
                  
                  $
                  849,388
  15
 Index
  NOTE 9 -
INCOME TAXES
  In
connection with the sale of the New Hope facility on April 7, 2008, the Company
recorded a pre-tax gain of approximately $1,593,222.  The Company recorded
tax expense of $594,272 and decreased the deferred tax assets by the
corresponding amount.  The gain on the sale of the New Hope facility, net
of tax, is included in gain from discontinued operations.
 
 During
the third quarter of 2008, we increased our valuation allowance for the entire
amount of our deferred tax assets, due to the uncertainties surrounding our
ability to utilize some or all of our deferred tax assets. The increase in the
valuation allowance resulted in $428,274 income tax expense for the three and
nine months ended September 30, 2008.
 
 If the
realization of the deferred tax assets in the future is considered more likely
than not, an adjustment to the deferred tax assets would increase net income in
the period such determination is made. The establishment of the valuation
allowance does not impair our ability to use the deferred tax assets upon
achieving profitability.
  NOTE 10 -
COMMITMENTS AND CONTINGENCIES
 
 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 on August 31, 2016.  The lease was
amended in May 2008 for additional space, a sprinkler system improvement
addition, and the term extension through August 31, 2018.  The monthly
base rent increases from $16,900 to $24,400 over the revised 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.
 
 
 Future
minimum lease payments are as follows for the years ending September
30:
 
 
 2009
                
                $
                201,5302010
                
                
                218,0202011
                
                
                226,1472012
                
                
                235,7622013
                
                
                245,377Thereafter
                
                
                1,359,384Total
                
                $
                2,486,220
  Other
Commitments
 
 On May 1,
2008, the Company entered into a research and development consulting agreement
with an entity that had common ownership with MarCum.  The agreement
requires the Company to pay the entity as follows:  (i) $525,000 in 36
monthly installments of $14,583 for research and development services beginning
June 1, 2008, (ii) $200,000 in 24 monthly installments of $8,333 for product
support services beginning June 1, 2008.  In addition, the Company
will pay this entity a royalty of 5% of net sales (for a period of three years
following the first sale) on any new product that meets certain requirements as
defined in the agreement.
 
 On May 1,
2008, the Company entered into a research and development consulting agreement
with an entity that had common ownership with MarCum.  The agreement
requires the Company to pay the entity as follows:  (i) $180,000 in 36
monthly installments of $5,000 for research and development services beginning
June 1, 2008, (ii) $100,000 in 24 monthly installments of $4,166 for product
support services beginning June 1, 2008.  In addition, the Company
will pay this entity a royalty of 5% of net sales (for a period of three years
following the first sale) on any new product that meets certain requirements as
defined in the agreement.
  16
 Index
  NOTE 11 -
CONCENTRATIONS
  Major
Customers
 
 The
Company derived more than 10% of its revenues from the following unaffiliated
customers in the following amounts for the nine months ended September
30:
 
 2008
                    
                    
                    2007Customer
      A
                    
                    $
                    753,627
                    
                    
                    $
                    860,276Customer
      B
                    
                    
                    975,053
                    
                    
                    
                    990,908Customer
      C
                    
                    
                    566,975
                    
                    
                    
                    *
 
 The
Company derived more than 10% of its revenues from the following unaffiliated
customers in the following amounts for the three months ended September
30:
 
 2008
                    
                    
                    2007Customer
      A
                    
                    $
                    
                    *
                    
                    $
                    229,370Customer
      B
                    
                    
                    640,143
                    
                    
                    
                    227,121Customer
      C
                    
                    
                    *
                    
                    
                    
                    *
 
 The
Company had receivable balances greater than 10% of its accounts receivable from
the following unaffiliated customers:
 
 September
      30, 2008
                    
                    
                    December
      31, 2007Customer
      A
                    
                    $
                    
                    *
                    
                    $
                    321,934Customer
      B
                    
                    
                    578,766
                    
                    
                    
                    579,127Customer
      C
                    
                    
                    *
                    
                    
                    
                    *
 
 *Did not
represent more than 10% of the Company’s revenues or accounts receivable for the
period indicated.
  Foreign
Sales
 
 Included
in the consolidated statements of operations are foreign sales related to
continuing operations of 1,015,859 and $476,038 for the nine months ended
September 30, 2008 and 2007, respectively, and $412,781 and $152,756 for the
three months ended September 30, 2008 and 2007, respectively.
 
 Foreign
Inventory
 
 Included
in the consolidated balance sheets are international inventories related to
continuing operations of $864,987 and $196,154 at September 30, 2008 and
December 31, 2007, respectively.  Foreign inventories consist of raw
material goods held in Asia and used in the production of Nature Vision
products.
 
 NOTE 12 -
DISCONTINUED OPERATIONS
 
 Vaddio product line
sale
 The sale
of Nature Vision’s Vaddio product line to New Vad, LLC (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 $757,372, which
consisted of $710,694 in cash at closing and $46,678 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. The
potential deferral proceeds of up to $750,000 will be recorded when earned and
collection is deemed probable.  Deferred sale proceeds of $465,150 and
$303,804 were recorded during the nine months and three months ended September
30, 2008, respectively.  Based on the past history of collections, the
Company elected to record the deferred sale proceeds as earned rather than
collected.  The Company has $212,853 included in other receivables as
of September 30, 2008 relating to the deferred sales proceeds.  There
is $215,206 remaining of the deferred sale proceeds to be recorded at September
30, 2008.
  17
 Index
  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 purchased, 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 was
purchased.  The Company has sold its entire inventory to New Vad as of
September 30, 2008.
 
 Gain on sale of
building
 
 On April
7, 2008, the Company sold its facility located in New Hope, Minnesota. Under the
terms of the Agreement, the Buyer purchased from the Company the real property,
building, improvements and certain personal property for a purchase price of
approximately $2,400,000.  The Company recorded a gain of $998,950
($1,593,222 pretax gain less income taxes of $594,272) that is included in
discontinued operations.  The Company used $1,917,000 of the proceeds
from the sale to pay off the mortgage loan with M&I Business Credit, LLC
with the remainder used for general working capital purposes.
 
 The
following are condensed statements of the discontinued operations (Vaddio and
gain on sale of building) for the three and nine months ended September
30:
  Three
      months ended
                      September
      30
                    
                    
                    Nine
      months ended
                      September
      302008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007Sales,
      Net
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    736,802Cost
      of good sold
                    
                    
                    -
                    
                    
                    
                    4,473
                    
                    
                    
                    -
                    
                    
                    
                    702,253Gross
      profit
                    
                    
                    -
                    
                    
                    
                    (4,473
                    )
                    
                    
                    -
                    
                    
                    
                    34,549Selling,
      general, and administrative
                    
                    
                    -
                    
                    
                    
                    86,526
                    
                    
                    
                    45,491
                    
                    
                    
                    355,963Loss
      from operations
                    
                    
                    -
                    
                    
                    
                    (90,999
                    )
                    
                    
                    (45,491
                    )
                    
                    
                    (321,414
                    )Other
      income (expense)
                    
                    
                    -
                    
                    
                    
                    10,000
                    
                    
                    
                    -
                    
                    
                    
                    60,000Gain
      on sale of building
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,593,222
                    
                    
                    
                    -Gain
      on sale of equipment
                    
                    
                    -
                    
                    
                    
                    689
                    
                    
                    
                    -
                    
                    
                    
                    163,689Gain
      on sale of Vaddio product line
                    
                    
                    303,804
                    
                    
                    
                    36,828
                    
                    
                    
                    465,150
                    
                    
                    
                    189,440Income
      (Loss) and gain from discontinued operations
                    
                    
                    303,804
                    
                    
                    
                    (43,482
                    )
                    
                    
                    2,012,881
                    
                    
                    
                    91,715Provision
      for income taxes
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    594,272
                    
                    
                    
                    -Gain
      (Loss) from discontinued operations
                    
                    $
                    303,804
                    
                    
                    $
                    (43,482
                    )
                    
                    $
                    1,418,609
                    
                    
                    $
                    91,715
  18
 Index
  Assets
and liabilities retained relating to the discontinued operations (Vaddio)
consisted of the following at September 30, 2008 and December 31,
2007:
 
 2008
                  
                  
                  2007Current
      assets retained relating to discontinued operations:Accounts
      receivable
                  
                  $
                  -
                  
                  
                  $
                  44,999Other
      Receivables
                  
                  
                  221,805Inventory
                  
                  
                  -
                  
                  
                  
                  298,414Total
                  
                  $
                  221,805
                  
                  
                  $
                  343,413Current
      liabilities retained relating to discontinued
      operations:Accrued
      transaction costs
                  
                  
                  -
                  
                  
                  
                  25,952Total
                  
                  $
                  -
                  
                  
                  $
                  25,952
 
 
 NOTE 13 -
SUPPLEMENTAL CASH FLOWS
 
 2008
                                  
                                  
                                  2007Supplemental
      Cash Flow DisclosuresCash
      paid for interest
                                  
                                  $
                                  287,541
                                  
                                  
                                  $
                                  208,596Cash
      paid for income taxes
                                  
                                  
                                  -
                                  
                                  
                                  
                                  5,000Noncash
      investing and financing activitiesFair
      value of stock options issued in exchange for guarantee of
      debt
                                  
                                  
                                  
                                  
                                  
                                  $
                                  50,256Leasehold
      improvements financed through Landlord payable
                                  
                                  
                                  46,054Transaction
      costs related to sale of segment included in current liabilities retained
      related to discontinued operations
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  43,000Supplemental
      cash flow information regarding the Company’s acquisition of assets
      associated with Innovative OutdoorsFair
      value of assets acquired
                                  
                                  $
                                  193,325Less
      liabilities assumed
                                  
                                  
                                  -Net
      assets acquired
                                  
                                  
                                  193,325Less
      note payable issued
                                  
                                  
                                  (182,572
                                  )Less
      cash acquired
                                  
                                  
                                  -Net
                                  
                                  $
                                  10,753Supplemental
      cash flow information regarding the Company’s acquisition of assets
      associated with MarCum TechnologiesFair
      value of assets acquired
                                  
                                  $
                                  759,521Less
      liabilities assumed
                                  
                                  
                                  -Net
      assets acquired
                                  
                                  
                                  759,521Less
      note payable issued
                                  
                                  
                                  -Less
      cash acquired
                                  
                                  
                                  -Net
                                  
                                  $
                                  759,521Supplemental
      cash flow information regarding the Company’s acquisition of assets
      associated with Castaic Softbait brandFair
      value of assets acquired
                                  
                                  $
                                  505,251Less
      liabilities assumed
                                  
                                  
                                  (82,860
                                  )Net
      assets acquired
                                  
                                  
                                  422,391Less
      note payable issued
                                  
                                  
                                  (81,750
                                  )Less
      cash acquired
                                  
                                  
                                  -Net
                                  
                                  $
                                  340,641Supplemental
      cash flow information regarding the Company’s acquisition of Cass
      CreekFair
      value of assets acquired
                                  
                                  
                                  
                                  
                                  
                                  $
                                  2,613,036Less
      liabilities assumed
                                  
                                  
                                  
                                  
                                  
                                  
                                  -Net
      assets acquired
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,613,036Less
      note payable issued
                                  
                                  
                                  
                                  
                                  
                                  
                                  (500,000
                                  )Less
      cash acquired
                                  
                                  
                                  
                                  
                                  
                                  
                                  (7,176
                                  )Net
                                  
                                  
                                  
                                  
                                  
                                  $
                                  2,105,860Supplemental
      cash flow information regarding the Company’s acquisition of Fish
      HawkFair
      value of assets acquired
                                  
                                  
                                  
                                  
                                  
                                  $
                                  323,310Less
      liabilities assumed
                                  
                                  
                                  
                                  
                                  
                                  
                                  -Net
      assets acquired
                                  
                                  
                                  
                                  
                                  
                                  
                                  323,310Less
      note payable issued
                                  
                                  
                                  
                                  
                                  
                                  
                                  (100,000
                                  )Less
      in process research and development expensed
                                  
                                  
                                  
                                  
                                  
                                  
                                  (15,000
                                  )Less
      cash acquired
                                  
                                  
                                  
                                  
                                  
                                  
                                  -Net
                                  
                                  
                                  
                                  
                                  
                                  $
                                  208,310
  19
 Index
  NOTE 14 –
SUBSEQUENT EVENT
 
 On
October 27, 2008, the Company borrowed $700,000 from its Chief Executive Officer
in order to meet its short-term cash flow requirements. This promissory note was
unsecured and had an interest rate of 15% (39.9% effective rate by including
fair value of warrants amortized over a two month term). The entire principal
and accrued interest is payable on January 1, 2009.  In connection
with the loan, the Company issued warrants to the Chief Executive Officer to
purchase 50,555 shares of common stock at an exercise price of $.90. The
warrants are exercisable from October 28, 2008 through October 27, 2010. The
fair value of the warrants was calculated at $31,071 using the Black Scholes
model. The following assumptions were used to calculate the value of the
warrants: dividend yield of 0%, risk free interest of 1.49%, expected life to
two years, and volatility of 140%. The resulting original issue discount, the
fair value of the warrants, are being amortized over the life of the debenture
using the straight-line method.
 
 Item 2: 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 Capital Market under the
symbol, “NRVN.”
  20
 Index
  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.
 
 With the
divesture of its photo equipment division Vaddio, the Company has focused its
resources on expanding its outdoor recreation products.  On July 3,
2007, the Company purchased substantially all the assets of Fish Hawk
Electronics Corporation, for $323,310.   The purchase provided
the Company with downrigger display technology that complimented its Vector line
of downrigger trolling products.
 
 On
September 20, 2007, Nature Vision closed on the acquisition of substantially all
of the assets of Cass Creek International, LLC (Cass Creek), a manufacturer and
distributor of electronic game calling devices, pursuant to the terms of an
Asset Purchase Agreement. The transaction involved the acquisition of equipment,
inventories, intellectual property, books and records, permits, licenses,
accounts receivable, cash, goodwill, general intangibles and certain other
assets of Cass Creek for a total purchase price of approximately
$2,600,000.
 
 On
January 21, 2008, the Company acquired substantially all of the assets
associated with the Castaic Softbait brand under an asset purchase
agreement. The purchase provided the Company with a proven fishing tackle
product platform.The addition of the Castaic Softbait brand provided Nature Vision with
not only a proven fishing tackle product platform, but also helped generate
additional revenues during the spring and summer periods, traditionally the
Company’s slower seasons. Castaic Softbait’s brand founder Jason Scott remains
active within the organization, as a research and development director for
Nature Vision’s tackle division.
 
 On April
30, 2008, Nature Vision closed on the acquisition of certain assets of MarCum
Technologies, Inc. (MarCum) a manufacturer and distributor of electronic sonar
and underwater camera devices, pursuant to the terms of an Asset Purchase
Agreement. The transaction involved the acquisition by Nature Vision of select
equipment, inventories, intellectual property, and general intangibles of MarCum
for a purchase price of approximately $760,000.
 
 The
long-term plans for the Company are to continue to expand its sales base in the
outdoor recreational markets. This growth will be achieved organically and
through anticipated strategic acquisitions.
  Revenue
  Revenue
consists of sales of our products net of returns and allowances. Revenue
includes sales via orders from 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.
Demand for our outdoor recreation products is seasonal, with the majority of
sales occurring in the fourth and first quarters. We will continually look to
strategic acquisitions to provide penetration into new product categories and
distribution channels as well as level seasonality.
  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, import duty, depreciation of production
equipment, amortization of molds and patents, warehousing, associated
management, occupancy costs, customer service and warranty, shipping and
receiving costs, quality assurance and other indirect manufacturing costs. Cost
of goods sold can fluctuate based on the product mix sold for a given period.
Increasing oil costs continue to drive up the cost of components and freight to
receive and ship products. In addition, currency fluctuations can impact our
landed costs in the U.S.A. We continue to evaluate make in-house versus
outsource opportunities to minimize product costs. We look to increase our
purchasing capacities and distribution abilities in order to achieve
efficiencies in certain operating costs.
  21
 Index
  Gross
Profit
  We define
gross profit as the difference between revenue and cost of goods sold. We
believe that gross profit is our best metric to manage the business on a 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, with the exception of advertising and sales commissions. Selling
expenses consist of payroll, commissions, product management, marketing,
advertising and customer relationship costs. General and administrative expenses
include payroll, product design, product development, engineering, order
processing, management information systems, accounting and administrative
costs.
  Income
(Loss) from Operations
  Income
(Loss) from Operations is defined as revenue less cost of goods sold and
selling, general and administrative expenses.
 
 Other
Income (Expense)
 
 Other
expense consists primarily of interest on the existing line of credit. The
interest rate is at the greater of 6% or prime plus .75%.  As of
September 30, 2008 the interest rate was 6%.
  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 decline in quantity. Consolidation of large
retail stores have and will continue to provide significant opportunities for
growth at the expense of the smaller owner operator establishments. We
anticipate the number of our 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.
  Economic Uncertainty.Our results of operations
are materially affected by conditions in the economy generally.  The
declining real estate and stock markets, as well as declining business and
consumer confidence and increased unemployment, have resulted in an economic
slowdown and possibly a recession.  These conditions may adversely
affect the demand for our products which may materially adversely affect our
business and results of operations.
 
 Decreased Inventories. As of
September 30, 2008 inventory has decreased in comparison to September 30,
2007.  Inventory decreased primarily as a result of better management
of inventory and timing of customers’ shipments.  We currently have
stock in place to fulfill incoming orders and management feels that the
inventory is readily saleable. We anticipate the ability to increase inventory
turnover during future quarters, with a corporate goal during 2008 to achieve a
2.0 turnover ratio compared to approximately a 1.7 ratio during fiscal 2007 and
2006.   Should sales of existing products not achieve forecasted
levels, such inventory turnover goals and reductions may not be
obtainable.
  Increased oil prices.Increased oil prices may affect us more negatively than our competition.
If gasoline prices should materially 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.
  22
 Index
  Increased interest costs.Given the cyclical nature of our business we are reliant on a credit
facility. As the Company continues to grow, additional borrowings may be
necessary.  An increased debt structure and changing interest rates
may impact the costs of operating the business. If we are unable to obtain
favorable financing arrangements it may impact the ability of the Company to
expand.
  Acquisition opportunities. We
continue to evaluate opportunities for strategic acquisitions in order to expand
sales and net income.  Potential acquisitions will require financing
which management believes will be reasonably available.   There
is no assurance, however, that acquisitions will occur or financing would be
available on terms acceptable to the Company or at all.
  Investment in infrastructure.We anticipate the continuing investment in infrastructure to support our
current distribution facility. We will also continue to invest in qualified
employees to support our organic growth with new product
innovation.
 
 Foreign Currency.The Company
sources a significant amount of its products from overseas.  As
foreign currencies fluctuate with the U.S. dollar, it may impact the overall
profitability of the operations.
 
 Results
of Operations
 
 The following table provides the
percentage change in our net sales, gross profit, loss from operations, and net
(loss)for the three months and nine months
endedSeptember 30,
2008andSeptember 30, 2007:
 
 
 (in
      thousands)
                  
                  Three
      months ended
                      September
      30
                  
                  
                  Increase
      (Decrease)
                  
                  
                  Nine months
      ended
                      September
      30
                  
                  
                  Increase
      (Decrease)2008
                  
                  
                  2007
                  
                  
                  
                  
                  
                  2008
                  
                  
                  2007NET
      SALES
                  
                  $
                  2,200
                  
                  
                  $
                  1,529
                  
                  
                  
                  43.9
                  %
                  
                  $
                  6,017
                  
                  
                  $
                  4,053
                  
                  
                  
                  48.5
                  %GROSS
      PROFIT
                  
                  
                  317
                  
                  
                  
                  326
                  
                  
                  
                  (2.8
                  %)
                  
                  
                  964
                  
                  
                  
                  526
                  
                  
                  
                  83.3
                  %LOSS
      FROM OPERATIONS
                  
                  
                  (724
                  )
                  
                  
                  (413
                  )
                  
                  
                  (75.3
                  %)
                  
                  
                  (2,090
                  )
                  
                  
                  (2,040
                  )
                  
                  
                  (2.5
                  %)NET
      LOSS
                  
                  $
                  (980
                  )
                  
                  $
                  (529
                  )
                  
                  
                  (85.3
                  %)
                  
                  $
                  (1,499
                  )
                  
                  $
                  (2,130
                  )
                  
                  
                  29.6
                  %
 
 
 The following table presents our gross
profit, loss from operations and net loss as a percentage of net sales for the
three months and nine months endedSeptember 30, 2008andSeptember 30, 2007:
 
 Three
      months ended
                      September 30
                  
                  
                  Nine
      months ended
                      September
      302008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007GROSS
      PROFIT
                  
                  
                  14.4
                  %
                  
                  
                  21.3
                  %
                  
                  
                  16.0
                  %
                  
                  
                  13.0
                  %LOSS
      FROM OPERATIONS
                  
                  
                  (32.9
                  %)
                  
                  
                  (27.0
                  %)
                  
                  
                  (35.7
                  %)
                  
                  
                  (50.3
                  %)NET
      LOSS
                  
                  
                  (44.6
                  %)
                  
                  
                  (34.6
                  %)
                  
                  
                  (24.9
                  %)
                  
                  
                  (52.6
                  %)
 
 
 Net sales
for the quarter ending September 30, 2008 of $2,200,000 were up by $671,000, or
43.9% compared to net sales of $1,529,000 during the same period last
year.  Year to date net sales for the nine months ending September 30,
2008 of $6,017,000 were up by $1,964,000, or 48.5% compared to net sales of
$4,053,000 during the same period last year.
  23
 Index
  Net sales
gains for the third quarter were primarily driven through acquisitions and new
product sales of viewing systems. Recent acquisitions during the last two years
have produced net sales gains during the third quarter of 2008 totaling $476,000
with Cass Creek and Castaic delivering net sales gains of $360,000 and $116,000,
respectively. In addition, net sales of viewing systems were up by $509,000 or
87.2%.
 
 Net sales
gains for the nine months ending September 30, 2008 were also driven through
acquisitions and strong sales of viewing systems. With recent acquisitions
producing net sales gains during the first nine months of 2008 with Cass Creek
and Castaic delivering net sales gains of $1,149,000 and $312,000; respectively.
In addition, net sales of viewing systems were up by $936,000 or
44.5%.
 
 Gross
profit during the third quarter ending September 30, 2008 of $317,000, or 14.4%
of net sales, compared slightly unfavorable to $326,000, or 21.3% of net sales,
during the third quarter of 2007. Year to date gross profit yield during the
first nine months of 2008 of $964,000, or 16.0% of net sales, compared favorably
to $526,000, or 13.0% of net sales, during the same period last
year.  Gross profit being slightly lower for the third quarter is a
result of higher depreciation and amortization expenses while the nine month
gain during the aforementioned period was primarily driven by higher margins
associated with the acquisitions’ product lines and the favorable impact of less
returns.
 
 Selling,
General and Administrative Expenses
 
 Total
selling, general and administrative expenses for the quarter ending September
30, 2008 of $1,041,000, or 47.3% of sales, were up $302,000, or 19.8% of sales
during the comparative period in 2007. Selling, general and administrative costs
have increased due to higher commissions and, higher research & development
expenses and were partially offset by lower advertising expenses. Commission
expenses have increased due to and proportionate to sales
gains.  Advertising expenses have decreased as part of a corporate
strategy to reduce overall expenses.  Research and development
expenses increased to $167,000 for the three months ended September 30, 2008
from $75,000 for the three months ended September 30, 2007 as a result of
acquisition consulting agreements to provide R&D services to develop new
products.
 
 Total
selling, general and administrative expenses for the nine months ending
September 30, 2008 of $3,054, 000, or 50.8% of sales, were up from spending of
$2,566,000, or 63.3% of sales during the comparative period in fiscal
2007.  Selling, general and administrative costs have increased due to
higher commissions and higher research & development expenses and were
partially offset by lower advertising expenses.  Research and
development expenses increased to $360,000 for the nine months ended September
30, 2008 from $177,000 for the nine months ended September 30, 2007 as a result
of acquisition consulting agreements to provide R&D services to develop new
products.
 
 Liquidity
and Capital Resources
  The
Company had a cash balance of $0 at September 30, 2008 compared to $131,487 at
December 31, 2007. The change is a combination of many economic factors
including the results of operations, new borrowings, and the daily cash
management of the Company.  Since the Company is a net borrower and
maintains an open line of credit, our daily cash management strategy is to hold
a minimum cash balance in order to minimize debt and related interest
expense.  Cash used in operations was $770,000 for the nine months
ended September 30, 2008.  Cash used in operating activities during
the first nine months of 2008 was primarily related to a net loss of $1,499,000,
gain of sale of discontinue operations of $465,000, gain of sale of building,
net of income taxes of $999,000, increase of inventories of $537,000, payments
of deferred retirement benefits of $58,000, and a net change of other operating
assets and liabilities of $206,000.  These amounts were partially
offset by depreciation and amortization of $593,000, decrease in accounts
receivable of $1,248,000, decrease in prepaid expenses of $36,000, increase in
accounts payable of $625,000, and other adjustments favorably impacting
operating cash flow of $63,000.
  Cash
provided by investing activities was $1,275,000 for the nine months ended
September 30, 2008 and primarily resulted from net proceeds from the building
sale of $2,295,000 and cash provided by the sale of discontinued operations and
related working capital totaling $561,000.  These amounts were
partially offset by the purchase of the assets associated with acquisitions of
the Castaic Softbait and MarCum brands and purchases of property and
equipment.
 
 The
Company received various cash proceeds from the sale of assets from discontinued
operations of $318,000 and deferred sale proceeds associated with the
discontinued operations of $243,000.
 
 On
January 21, 2008 the Company acquired substantially all of the assets associated
with the Castaic Softbait brand under an asset purchase agreement. The
purchase provides the Company with a proven fishing tackle product platform.The
total purchase price net of promissory notes and liabilities was
$341,000.
  24
 Index
  On April
30, 2008, the Company acquired certain assets of MarCum Technologies, Inc.
(MarCum), a manufacturer and distributor of electronic sonar and underwater
camera devices, pursuant to the terms of an asset purchase agreement. The
transaction involved the acquisition by Nature Vision of select equipment,
inventories, intellectual property, and general intangibles of MarCum for a
purchase price of approximately $760,000.
 
 In
addition, the Company purchased $377,000 of property, equipment, and intangibles
during the nine months ended September 30, 2008.
 
 Cash used
in financing activities was $729,000 for the nine months ended September 30,
2008.  Financing activities consuming cash include pay off of the
building mortgage totaling $1,900,000 and principal payments of long-term debt
totaling $161,000.  Financing activities providing cash include net
advances on the Company’s line of credit totaling $1,200,000 and increase of
checks issued in excess of cash in bank of $131,000.
  As of
September 30, 2008, working capital increased to $1,360,000 from $1,062,000 at
December 31, 2007. The Company’s current ratio, as of September 30, 2008, is
1.22 compared with 1.15 at December 31, 2007.  The Increase in working
capital is primarily driven by net proceeds on the building sale of
approximately $2,294,000 and the two year extension of the related party note of
$1,000,000 partially offset by the year-to-date net loss of $1,070,000 and the
cost of acquisitions.
 
 The
Company maintains a line of credit for financing inventory and accounts
receivable. up to $6,000,000 at the greater of 6.0% or prime plus
..75%.  The prime rate at September 30, 2008 was 5.00%. Effective as of
December 1, 2008 the interest rate will be one month LIBOR plus
3.75%.  One month LIBOR rate was 2.0% as of September 30,
2008.  As of September 30, 2008, the Company had the ability to borrow
additional amounts of up to approximately $868,000 under the facility for
working capital requirements.  The loan is secured against the
accounts receivable, inventory, equipment and other assets of the Company.
Borrowings under the line are subject to advanced rates of 75% of eligible
accounts receivable and 50% of eligible inventory.  Effective from
August 1, 2008 through October 31, 2008 the Company received an over advance
amount of $600,000 in order to assist the Company with meeting it’s short term
cash flow requirements.  The line of credit facility is considered a
demand type loan and henceforth does not have a maturity date.  The
terms of the credit agreement are written such that the line will stay in place
for up to three years if the Company can satisfactorily perform within certain
parameters outlined by the bank.  The agreement requires minimum net
worth (including subordinated debt) of $5,500,000 and minimum tangible net worth
of $2,200,000.   The Company did not meet the minimum net worth
and tangible net worth covenants as of September 30, 2008, but has received a
noncompliance waiver from M&I Bank.
 
 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 original purchase
price paid by the Buyer was $757,372 which consisted of $710,694 in cash at
closing and $46,678 in assumed vacation pay. 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
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.
Through September 30, 2008, the Company has received $322,000 in royalty
payments.  The proceeds from these deferred payments are recognized
into income as received. In addition, the parties 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.  As of September 30, 2008, the entire inventory has been
sold and paid to Nature Vision.
  On July
8, 2008, the Company amended the terms and replaced the original demand note
issued to the member of its Board of Directors on October 19,
2007.  The amended demand note is held by the same member of the
Company’s Board of Directors.  The demand promissory note is unsecured
and bears an interest rate of 15% (20% effective rate including new warrants
issued to the Director and amortized over a two year term).  Interest
is payable on the first day of each month commencing on August 1,
2008.  The entire principal and interest is payable upon demand
anytime after June 30, 2010.  In connection with the new loan, the
Company issued additional warrants to the Director to purchase 100,000 shares of
common stock at an exercise price of $1.31.  The warrants are
exercisable from July 8, 2008 to June 30, 2013.  The fair value of the
warrants was calculated at $100,300 using the Black Scholes
model.  The following assumptions were used to calculate the value of
the warrants: (i) dividend yield of 0%, risk free interest of 3.34%, expected
life of 5 years, and volatility of 103%.  The resulting original issue
discount, the fair value of the warrants, will be amortized over the life of the
debenture using the straight-line method.  Amortization expense on the
original issue discount was $12,538 for the nine months and three months ended
September 30, 2008 and is included in interest expense.  The note
payable is subordinate to the bank notes (see notes 7 and 8)
  25
 Index
  On
October 27, 2008, the Company borrowed $700,000 from its Chief Executive Officer
in order to meet its short-term cash flow requirement. This promissory note was
unsecured and had an interest rate of 15% (39.9% effective rate by including
fair value of warrants amortized over a two month term). The entire principal
and accrued interest is payable on January 1, 2009.  In connection
with the loan, the Company issued warrants to the Chief Executive Officer to
purchase 50,555 shares of common stock at an exercise price of $.90. The
warrants are exercisable from October 28, 2008 through October 27, 2010. The
fair value of the warrants was calculated at $31,071 using the Black Scholes
model. The following assumptions were used to calculate the value of the
warrants: dividend yield of 0%, risk free interest of 1.49%, expected life to
two years, and volatility of 140%. The resulting original issue discount, the
fair value of the warrants, are being amortized over the life of the debenture
using the straight-line method.
 
 We
incurred a net loss for the nine months ended September 30, 2008 and 2007 of
approximately $1,499,000 and $2,130,000, respectively.
 
 Management
believes that existing positive working capital, additional cash generated from
operations during the fourth quarter, available lending capacity from the bank
line of credit, and the infusion of cash from subordinated debt, will supply
sufficient cash flow to fund operating activities and capital expenditures as
well as meet debt service obligations for at least the next twelve
months.
 
 In the
event future cash flows and borrowing capacities are not sufficient to fund
operations at the present level, additional measures will be taken including a
reduction in operating and capital expenditures.  In addition, we believe
that other sources of liquidity are available which may include additional
subordinated debt, and raising additional capital.  However, there is no
assurance that these other sources of liquidity will be available or on terms
acceptable to the Company.
 
 Off-Balance
Sheet Arrangements
  As of
September 30, 2008, there were no off-balance sheet arrangements, unconsolidated
subsidiaries and commitments or guaranties of other parties.
  Critical Accounting
Policies
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expense during the reporting
period.
  Certain
accounting estimates and assumptions are particularly sensitive because their
significance to the consolidated condensed financial statements and the
possibility that future events affecting them may differ markedly. The
accounting policies of the Company with significant estimates and assumptions
include the Company’s sales and warranty reserve, revenue recognition, accounts
receivable reserves, long-lived assets, inventory reserves, and deferred taxes
policies. These and other significant accounting policies are described in and
incorporated by reference from “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” and Note 1 to the financial
statements contained in or incorporated by reference in the Company’s Annual
Report on Form 10-KSB for the year ended December 31, 2007.
  Item
3: Quantitative and Qualitative Disclosures About Market Risk.
 
 Not
Applicable
  Item 4T: Controls and Procedures.
 
 Disclosure
Controls and Procedures
 
 An
evaluation was carried out under the supervision and with the participation of
Nature Vision’s management, including our Chief Executive Officer, Jeffrey P.
Zernov, and our Chief Financial Officer, Robert P. King, of the effectiveness of
Nature Vision’s 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 King concluded that our disclosure controls and procedures are
effective.
  26
 Index
  There
have been no significant changes in internal control over financial reporting
(as defined in Rules 13a-15 and 15d-15 under the Exchange Act) that occurred
during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, Nature Vision’s internal control over
financial reporting.
 
 Management’s
Report on Internal Control Over Financial Reporting
 
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-5(f)
under the Exchange Act).  Our management assessed the effectiveness of
our internal control over financial reporting as of September 30,
2008.  In making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”) in Internal Control-Integrated Framework.  Our management has
concluded that, as of September 30, 2008, our internal control over financial
reporting is effective based on these criteria.  This report does not
include an attestation report of Nature Vision’s registered public accounting
firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by
Nature Vision’s independent registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit Nature
Vision to provide only management’s report in this report.
 
 Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our internal control over financial reporting will prevent
all error and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within Nature Vision have been detected.  Nature Vision’s
internal controls over financial reporting, however, are designed to provide
reasonable assurance that the objectives of internal control over financial
reporting are met.
 
 Part II – OTHER
INFORMATION
 
 Item 1.  Legal
Proceedings.  Not applicable.
 
 Item 2.  Unregistered Sales
of Equity Securities and Use of Proceeds.  Not
applicable.
 
 Item 3.  Defaults Upon
Senior Securities.  Not applicable.
 
 Item
4.  Submission of Matters to a Vote of Security
Holders.
 
 Item 5.  Other
Information.  Not applicable.
 
 Item 6.  Exhibits.
 
 Listing
of Exhibits:
 
 10.1
                  
                  Amendment
      to Credit and Security Agreement with M&I Business Credit, LLC, dated
      November 10, 2008.31.1
                  
                  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.
  27
 Index
  Signatures
 
 
 In
accordance with the requirements 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:  November
      14, 2008
                  By:
                  /s/ Jeffrey P. ZernovIts:  Chief
      Executive Officer and PresidentDate:  November
      14, 2008
                  By:
                  /s/ Robert P. KingIts:  Chief
      Financial Officer
   28