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 June 30, 2008





o 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 oNo





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 filero
            Accelerated
      filero
            Non-accelerated
      filero
            Smaller
      reporting companyx





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


o Yesx  No





The
number of shares of issuer’s common stock, par value $0.16 per share,
outstanding as of August 7, 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 – June 30, 2008 and December 31,
      2007
            1Consolidated Statements of Operations - Three Months and Six
      Months Ended June 30, 2008 and 2007
            2Consolidated Statements of Cash Flows - Six Months Ended June
      30, 2008 and 2007
            3Notes to Consolidated Financial
    Statements
            4Item
      2:
            Management's Discussion and Analysis of Financial Condition
      and Results of Operations
            18Item
      4T:
            Controls and Procedures
            23PART
      II
            
            OTHER
      INFORMATIONItem
      4:
            Submission of Matters to a Vote of Security
      Holders
            24Item 6:
            Exhibits
            24Signatures
            25





Index





PartI –
FINANCIAL INFORMATION




Item
1: Financial Statements




Nature
Vision, Inc. and Subsidiaries


Consolidated
Balance Sheets


June
30, 2008 and December 31, 2007





UnauditedJune
      30,
            
            
            December
      31,2008
            
            
            2007ASSETSCURRENT
      ASSETSCash
      and Cash Equivalents
            
            $
            -
            
            
            $
            131,487Accounts
      Receivable, net
            
            
            787,616
            
            
            
            2,774,618Inventories,
      net
            
            
            4,339,778
            
            
            
            4,769,648Current
      Portion of Prepaid Expenses
            
            
            148,112
            
            
            
            229,594Current
      Assets Retained Relating to Discontinued Operations
            
            
            -
            
            
            
            343,413Total
      Current Assets
            
            
            5,275,506
            
            
            
            8,248,760PROPERTY
      AND EQUIPMENT, NET
            
            
            1,935,650
            
            
            
            1,555,052NON-CURRENT
      ASSETSBuilding
      and Land Held for Sale, Net
            
            
            -
            
            
            
            701,719Prepaid
      Expenses, net of Current Portion
            
            
            39,945
            
            
            
            47,468Deferred
      Income Taxes
            
            
            428,274
            
            
            
            1,022,546Goodwill
            
            
            666,373
            
            
            
            666,373Intangibles
      - net
            
            
            1,706,406
            
            
            
            1,056,746Total
      Non-Current Assets
            
            
            2,840,998
            
            
            
            3,494,852TOTAL
      ASSETS
            
            $
            10,052,154
            
            
            $
            13,298,664LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIESChecks
      Issued in Excess of Cash in Bank
            
            $
            44,626
            
            
            $
            -Current
      Portion of Long-Term Debt
            
            
            221,141
            
            
            
            2,133,333Note
      Payable – Related Party
            
            
            -
            
            
            
            979,159Current
      Portion of Deferred Retirement Benefits
            
            
            69,781
            
            
            
            74,657Line
      of Credit, Bank
            
            
            1,964,146
            
            
            
            2,537,835Accounts
      Payable
            
            
            388,213
            
            
            
            558,040Accrued
      Payroll and Payroll Taxes
            
            
            142,303
            
            
            
            166,758Accrued
      Expenses
            
            
            484,392
            
            
            
            710,654Current
      Liabilities Retained Relating to Discontinued
    Operations
            
            
            -
            
            
            
            25,952Total
      Current Liabilities
            
            
            3,314,602
            
            
            
            7,186,388LONG-TERM
      LIABILITIESLong-term
      Debt, Net of Current Portion
            
            
            638,493
            
            
            
            466,667Note
      Payable – Related Party
            
            
            1,000,000
            
            
            
            -Deferred
      Retirement Benefits, Net of Current Portion
            
            
            451,598
            
            
            
            483,214Total
      Non-Current Liabilities
            
            
            2,090,091
            
            
            
            949,881Total
      Liabilities
            
            
            5,404,693
            
            
            
            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 June 30, 2008 and December 31,
      2007
            
            
            370,013
            
            
            
            370,013Additional
      Paid-In Capital
            
            
            7,008,901
            
            
            
            7,005,553Accumulated
      Deficit
            
            
            (2,731,453
            )
            
            
            (2,213,171
            )Total
      Stockholders’ Equity
            
            
            4,647,461
            
            
            
            5,162,395TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            10,052,154
            
            
            $
            13,298,664





See
accompanying notes to consolidated financial statements.





1
 Index





NatureVision, Inc. and Subsidiaries


Consolidated
Statements of Operations (Unaudited)





Three
      months ended June 30,
            
            
            Six
      months ended June 30,2008
            
            
            2007
            
            
            2008
            
            
            2007SALES,
      NET
            
            $
            1,450,166
            
            
            $
            767,852
            
            
            $
            3,817,231
            
            
            $
            2,523,931COST
      OF GOOD SOLD
            
            
            1,452,103
            
            
            
            876,726
            
            
            
            3,170,586
            
            
            
            2,323,840GROSS
      PROFIT(LOSS)
            
            
            (1,937
            )
            
            
            (108,874
            )
            
            
            646,645
            
            
            
            200,091SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES
            
            
            896,021
            
            
            
            860,987
            
            
            
            2,012,908
            
            
            
            1,826,704LOSS
      FROM OPERATIONS
            
            
            (897,958
            )
            
            
            (969,861
            )
            
            
            (1,366,263
            )
            
            
            (1,626,613
            )OTHER
      INCOME (EXPENSE)Interest
      expense
            
            
            (96,615
            )
            
            
            (65,223
            )
            
            
            (265,165
            )
            
            
            (126,114
            )Interest
      income
            
            
            -
            
            
            
            11,176
            
            
            
            -
            
            
            
            16,649Other
      expenses
            
            
            (1,659
            )
            
            
            -
            
            
            
            (1,659
            )
            
            
            -Net
      Other Income (Expenses)
            
            
            (98,274
            )
            
            
            (54,047
            )
            
            
            (266,824
            )
            
            
            (109,465
            )LOSS
      FROM CONTINUING OPERATIONS BEFORE TAXES
            
            
            (996,232
            )
            
            
            (1,023,908
            )
            
            
            (1,633,087
            )
            
            
            (1,736,078
            )PROVISION
      FOR INCOME TAX EXPENSE
            
            
            -
            
            
            
            284,000
            
            
            
            -
            
            
            
            -LOSS
      FROM CONTINUING OPERATIONS
            
            
            (996,232
            )
            
            
            (1,307,908
            )
            
            
            (1,633,087
            )
            
            
            (1,736,078
            )GAIN  FROM
      DISCONTINUED OPERATIONS, NET OF TAX
            
            
            1,070,228
            
            
            
            155,673
            
            
            
            1,114,805
            
            
            
            135,197NET
      INCOME (LOSS)
            
            $
            73,996
            
            
            $
            (1,152,235
            )
            
            $
            (518,282
            )
            
            $
            (1,600,881
            )Loss
      from continuing operations per common shareBasic
            
            $
            (0.43
            )
            
            $
            (0.57
            )
            
            $
            (0.71
            )
            
            $
            (0.77
            )Diluted
            
            $
            (0.43
            )
            
            $
            (0.57
            )
            
            $
            (0.71
            )
            
            $
            (0.77
            )Gain
      from discontinued operations per common shareBasic
            
            $
            0.46
            
            
            $
            0.07
            
            
            $
            0.49
            
            
            $
            0.06Diluted
            
            $
            0.46
            
            
            $
            0.07
            
            
            $
            0.49
            
            
            $
            0.06Net
      income (loss) per common shareBasic
            
            $
            0.03
            
            
            $
            (0.50
            )
            
            $
            (0.22
            )
            
            $
            (0.71
            )Diluted
            
            $
            0.03
            
            
            $
            (0.50
            )
            
            $
            (0.22
            )
            
            $
            (0.71
            )Weighted
      average common sharesBasic
            
            
            2,312,583
            
            
            
            2,297,260
            
            
            
            2,312,583
            
            
            
            2,261,522Diluted
            
            
            2,312,583
            
            
            
            2,297,260
            
            
            
            2,312,583
            
            
            
            2,261,522





See
accompanying notes to consolidated financial statements.





2
 Index





NatureVision, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows (Unaudited)


Six
Months Ended June 30, 2008 and 2007





2008
            
            
            2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
            
            $
            (518,282
            )
            
            $
            (1,600,881
            )Adjustments
      to reconcile net loss to net cash flows from operating
      activitiesDepreciation
      and amortization
            
            
            383,089
            
            
            
            220,488Gain
      on sale of discontinued operations
            
            
            (161,346
            )
            
            
            (152,612
            )Gain
      on disposal of equipment
            
            
            -
            
            
            
            (163,000
            )Loss
      on impairment of tooling
            
            
            28,180
            
            
            
            -Gain
      on sale of building, net of income taxes
            
            
            (998,950
            )
            
            
            -Stock
      based compensation
            
            
            3,348
            
            
            
            -Amortization
      of original issue discount
            
            
            20,841
            
            
            
            -Changes
      in operating assets and liabilitiesAccounts
      receivable
            
            
            1,987,002
            
            
            
            2,546,011Inventories,
      net
            
            
            689,526
            
            
            
            715,546Prepaid
      expenses
            
            
            89,005
            
            
            
            84,579Accounts
      payable
            
            
            (169,827
            )
            
            
            (652,311
            )Income
      taxes payable
            
            
            -
            
            
            
            (5,000
            )Accrued
      payroll and payroll taxes
            
            
            (24,455
            )
            
            
            (3,860
            )Accrued
      expenses
            
            
            (309,122
            )
            
            
            (491,517
            )Payments
      on deferred retirement benefits
            
            
            (36,492
            )
            
            
            (37,903
            )Net
      Cash Flows from Operating Activities
            
            
            982,517
            
            
            
            459,540CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of property and equipment
            
            
            (237,086
            )
            
            
            (129,674
            )Purchase
      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
            )
            
            
            -Proceeds
      from sale of building
            
            
            2,294,941
            
            
            
            -Proceeds
      from sale of life insurance policies
            
            
            -
            
            
            
            148,310Proceeds
      from sale of discontinued operations, net
            
            
            161,346
            
            
            
            407,801Payments
      received on note receivable
            
            
            -
            
            
            
            300,000Net
      proceeds from sale of working capital associated with discontinued
      operations
            
            
            317,461
            
            
            
            1,965,288Purchases
      of intangible assets
            
            
            (6,000
            )
            
            
            -Net
      Cash Flows from (used in) Investing Activities
            
            
            1,419,747
            
            
            
            2,691,725CASH
      FLOWS FROM FINANCING ACTIVITIESIncrease
      (decrease) in checks issued in excess of cash in bank
            
            
            44,626
            
            
            
            (71,394
            )Net
      payments on line of credit, bank
            
            
            (573,689
            )
            
            
            (2,365,000
            )Principal
      payments on long-term debt
            
            
            (2,004,688
            )
            
            
            -Cash
      received on exercise of options
            
            
            -
            
            
            
            77,613Payments
      on contract payable
            
            
            -
            
            
            
            (762,231
            )Net
      Cash Flows from (used in) Financing Activities
            
            
            (2,533,751
            )
            
            
            (3,121,012
            )Net
      Change in Cash and Cash Equivalents
            
            
            (131,487
            )
            
            
            30,253CASH
      AND CASH EQUIVALENTS - January 1, 2008 and 2007
            
            
            131,487
            
            
            
            2,344CASH
      AND CASH EQUIVALENTS – June 30, 2008 and 2007
            
            $
            -
            
            
            $
            32,597





See
accompanying notes to consolidated financial statements.





3
 Index





NATUREVISION, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


June 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 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 June 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 six months ended June 30, 2008 and 2007 of
approximately $518,000 and $1,601,000, respectively.  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 efforts to
reduce expenses.  In addition, we believe that other sources of
liquidity are available which may include the expansion of our credit
facility.  However, there is no assurance that these other sources of
liquidity will be available or on terms acceptable to the
Company.





Management
believes that existing, current and future lending capacity and cash generated
from operations will supply sufficient cash flow to meet short-term and
long-term debt obligations, working capital, capital expenditure and operating
requirements for at least the next 12 months.





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 replaced its related party note with a note that is due on
demand after June 30, 2010 (see Note 6).




INTERIM
FINANCIAL INFORMATION




The
accompanying consolidated balance sheet at June 30, 2008, and the consolidated
statements of operations and cash flows for the six months and three months
ended June 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 six months and three months ended June 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 six months and three months ended June 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 June 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 three months ended June 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. The Company negotiated the sale of
these assets and assumption of certain liabilities during the quarter ended
December 31, 2006.





These
assets met the requirements of SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets" as being held for sale. Operations and cash flows
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 sold relating to discontinued operations" and
“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 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.





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.  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 June 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
$39,945 and $47,468 at June 30, 2008 and December 31, 2007,
respectively.





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.





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 $140,000 and $300,000 at June 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 periods
ended June 30, 2008 and 2007.





6
 Index




2008
            
            
            2007Accrued
      balance - beginning
            
            $
            300,000
            
            
            $
            175,000Provision
            
            
            323,000
            
            
            
            756,000Claims
      incurred
            
            
            (483,000
            )
            
            
            (846,000
            )Accrued
      balance - ending
            
            $
            140,000
            
            
            $
            85,000





RESEARCH
AND DEVELOPMENT





The
Company expenses all costs related to product research and development as
incurred.





STOCK-BASED
COMPENSATION





Effective January 1, 2006, the Company
adopted the fair value recognition and measurements provisions of SFAS No.
123(R), using the modified-prospective-transition method. Under that transition
method, compensation cost for stock options recognizedduring the periods ended June
30, 2008 and 2007 includes
compensation cost for all options granted prior to, but notvested as of January 1, 2006, based on
the grant date fair value estimated in accordance with the provisions of SFAS
No. 123. Compensation cost will be recorded for all options granted, if any,
subsequent to January 1, 2006, based on the grant-date fair value estimated in
accordance with the provisions of SFAS No. 123(R). Results for prior periods
have not been restated.





In
accordance with SFAS No. 123(R), cash flows from income tax benefits resulting
from tax deductions in excess of the compensation cost recognized for
stock-based awards have been classified as financing cash flows prospectively
from January 1, 2006. Prior to adoption of SFAS No. 123(R), such excess income
tax benefits were presented as operating cash flows. There were no cash flows
from income tax benefits for the periods ended June 30, 2008 and
2007.





The
following assumptions were used to calculate the value of the options granted
during the six months ended June 30, 2008: dividend yield of 0%, risk-free
interest rate of 3%, expected life equal to 3.5 years, and volatility of
76%.


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.


·
            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 June 30, 2008, there was $17,403 of total unrecognized
compensation costs related to the outstanding options, which is expected to be
recognized over a period of 31 months.





The
weighted average fair value of stock options granted on the date of grant during
the six months ended June 30, 2008 was $.89.





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





7
 Index





NET
INCOME (LOSS) PER COMMON SHARE





Net loss
per common share was based on the weighted average number of common shares
outstanding during the periods when computing the basic net loss per share. When
dilutive, stock options and warrants are included as equivalents using the
treasury stock market method when computing the diluted net loss per
share.  There were no dilutive common stock equivalents, options and
warrants, for the six months and three months ended June 30, 2008 and 2007.
Anti-dilutive options and warrants were 219,450 and 66,450 at June 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. Deferred taxes are
reduced by a valuation allowance to the extent that realization of the related
deferred tax assets is not assured.





In June
2006, the FASB issued FASB Interpretation No. 48, or FIN 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109,"
which prescribes comprehensive guidelines for recognizing, measuring, presenting
and disclosing in the financial statements tax positions taken or expected to be
taken on tax returns. FIN 48, effective for fiscal years beginning after
December 15, 2006, seeks to reduce the diversity in practice associated with
certain aspects of the recognition and measurement related to accounting for
income taxes. The Company adopted provisions of FASB Interpretation 48,
Accounting for Uncertainty in Income Taxes: an interpretation of FASB Statement
109, Accounting for Income Taxes (“FIN 48) on January 1, 2007. 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 2004-2007.





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.





8
 Index





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.





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.





9
 Index





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).





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 six months and three months ended June 30, 2008
and June 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.





10
 Index





For the
six months ended June 30, 2008 and 2007:





June
      30, 2008
            
            
            June
      30, 2007As
      reported
            
            
            Pro
      forma
            
            
            As
      reported
            
            
            Pro
      formaNet
      sales
            
            $
            3,817,231
            
            
            $
            4,061,520
            
            
            $
            2,523,931
            
            
            $
            3,496,287Loss
      from continuing operations
            
            
            (1,633,087
            )
            
            
            (1,933,636
            )
            
            
            (1,736,078
            )
            
            
            (1,441,691
            )Gain
      from discontinued operations
            
            
            1,114,805
            
            
            
            1,114,805
            
            
            
            135,197
            
            
            
            135,197Net
      loss
            
            
            (518,282
            )
            
            
            (818,831
            )
            
            
            (1,600,881
            )
            
            
            (1,306,494
            )Loss
      per common share:Basic
            
            $
            (.22
            )
            
            $
            (.35
            )
            
            $
            (.71
            )
            
            $
            (.58
            )Diluted
            
            $
            (.22
            )
            
            $
            (.35
            )
            
            $
            (.71
            )
            
            $
            (.58
            )








For the
three months ended June 30, 2008 and 2007:





June
      30, 2008
            
            
            June
      30, 2007As
      reported
            
            
            Pro
      forma
            
            
            As
      reported
            
            
            Pro
      formaNet
      sales
            
            $
            1,450,166
            
            
            $
            1,450,166
            
            
            $
            767,852
            
            
            $
            1,026,135Loss
      from continuing operations
            
            
            (996,232
            )
            
            
            (996,232
            )
            
            
            (1,307,908
            )
            
            
            (1,378,429
            )Gain
      from discontinued operations
            
            
            1,070,228
            
            
            
            1,070,228
            
            
            
            155,673
            
            
            
            155,673Net
      income (loss)
            
            
            73,996
            
            
            
            73,996
            
            
            
            (1,152,235
            )
            
            
            (1,222,756
            )Income
      (loss) per common share:Basic
            
            $
            .03
            
            
            $
            .03
            
            
            $
            (.50
            )
            
            $
            (.54
            )Diluted
            
            $
            .03
            
            
            $
            .03
            
            
            $
            (.50
            )
            
            $
            (.54
            )








NOTE 3 -
INVENTORIES





Inventories
consisted of the following at:





June
      30,
              2008
            
            
            December
      31,
              2007Raw
      Materials
            
            $
            1,921,500
            
            
            $
            1,953,000Finished
      Goods
            
            
            2,593,278
            
            
            
            3,011,510Total
            
            
            4,514,778
            
            
            
            4,964,510Less:
      Valuation Allowance
            
            
            (175,000
            )
            
            
            (194,862
            )Inventories,
      net
            
            $
            4,339,778
            
            
            $
            4,769,648





NOTE 4 -
PROPERTY AND EQUIPMENT





Property
and equipment consisted of the following at:





June
      30,
              2008
            
            
            December
      31,
              2007Tooling
            
            $
            1,397,079
            
            
            $
            1,268,868Office
      furniture and equipment
            
            
            526,785
            
            
            
            459,586Warehouse
      equipment
            
            
            417,251
            
            
            
            305,724Vehicles
            
            
            27,697
            
            
            
            20,279Leasehold
      improvements
            
            
            305,048
            
            
            
            256,750Construction
      in progress
            
            
            168,667
            
            
            
            106,717Total
            
            
            2,842,527
            
            
            
            2,417,924Less:
      Accumulated depreciation
            
            
            (906,877
            )
            
            
            (862,872
            )Net
            
            $
            1,935,650
            
            
            $
            1,555,052





11
 Index





NOTE 5 -
INTANGIBLES





Schedule
of Intangible Assets at June 30:





2008Gross
              Amount
            
            Accumulated
              Amortization
            
            Net
      Value
              at
      June 30, 2008Intangible
      assets subject to amortization:Trademarks
            
            $
            214,235
            
            
            $
            29,247
            
            
            $
            184,988Non-compete
            
            
            337,420
            
            
            
            54,578
            
            
            
            282,842Customer
      lists
            
            
            580,000
            
            
            
            83,833
            
            
            
            496,167Intellectual
      property and related patents
            
            
            833,166
            
            
            
            92,535
            
            
            
            740,631Other
            
            
            2,000
            
            
            
            222
            
            
            
            1,778Totals
            
            $
            1,966,821
            
            
            $
            260,415
            
            
            $
            1,706,406








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 six months and three months ended June 30, 2008 and
is included in interest expense.





12
 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.  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 up to a maximum amount of $6,000,000. This
line of credit was used to pay off its existing line of credit with First
National Bank of Deerwood. The Demand Term Note with M&I Bank (Note
8) was incorporated into this facility. Interest is payable
monthly at prime plus .75% (5.75% at June 30, 2008). The line of credit is
collateralized by accounts receivable, inventories, property and equipment, and
other assets of the Company. 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 required the Company
to be in compliance with the following affirmative covenants as of June 30,
2008:  minimum net worth (including subordinated debt) of $5,500,000,
and minimum tangible net worth of $2,200,000.   Minimum
stockholders' equity annual increases will be $100,000 year over year during the
duration of the agreement. The facility is based on the following borrowing
base restrictions, 75% of eligible accounts receivable and 50% of eligible
inventories. 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 $1,964,146
and $2,537,835 at June 30, 2008 and December 31, 2007,
respectively.





NOTE 8 -
LONG-TERM DEBT





Long-term
debt consisted of the following at:





June
      30,
              2008
            
            
            December
      31,
              2007Unsecured
      Promissory Note – Cass Creek – annual installments of $100,000 plus
      interest at 8% from September 2008 through September 2012, guaranteed by
      the CEO of the Company
            
            $
            500,000
            
            
            $
            500,000Unsecured
      Note Payable – Fish Hawk -  annual installments of $33,333 plus
      interest at 8% from July 2008 through July 2010
            
            
            100,000
            
            
            
            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
            
            
            32,812
            
            
            
            -Unsecured
      Note Payable – monthly installments of $1,458, including interest at 7%,
      from August 2008 through July 2010
            
            
            32,572
            
            
            
            -Unsecured
      Note Payable – Innovative Outdoors – monthly installments of $4,632,
      including interest at 7% from August 2008 through July
      2011
            
            
            150,000
            
            
            
            -Totals
            
            
            859,634
            
            
            
            2,600,000Less:
      Current portion
            
            
            221,141
            
            
            
            2,133,333Net
      Long-term Debt
            
            $
            638,493
            
            
            $
            466,667





13
 Index





Future
maturities of long-term debt for years ending after June 30, 2008 are as
follows:





TotalYear
      ending June 30:2009
            
            $
            221,1412010
            
            
            227,7222011
            
            
            210,7712012
            
            
            100,0002013
            
            
            100,000Total
      Long-Term Debt
            
            $
            859,634





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 discontinued operations.





Due to
continuing operating losses, the Company has recorded a valuation allowance on
its deferred tax assets for operating losses (excluding the gain on the building
sale as noted above) before income taxes that were recorded for the six months
ending June 30, 2008.





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 being
added, and the term being extended through August 31, 2018.  The
monthly base rent increases from $16,900 to $24,400 over the revised term of the
lease. In addition, the Company is contractually obligated to pay for costs up
to $88,000 relating to the sprinkler system.  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.





14
 Index





Future
minimum lease payments are as follows for the years ending June 30:








2009
            
            $
            186,0592010
            
            
            216,1222011
            
            
            224,0142012
            
            
            233,3592013
            
            
            242,974Thereafter
            
            
            1,421,329Total
            
            $
            2,523,857








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.





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 six months ended June
30:





2008
            
            
            2007Customer
      A
            
            $
            632,546
            
            
            $
            646,065Customer
      B
            
            
            *
            
            
            
            447,615Customer
      C
            
            
            *
            
            
            
            *





The
Company derived more than 10% of its revenues from the following unaffiliated
customers in the following amounts for the three months ended June
30:





2008
            
            
            2007Customer
      A
            
            $
            190,984
            
            
            $
            177,936Customer
      B
            
            
            *
            
            
            
            114,901Customer
      C
            
            
            314,020
            
            
            
            *





The
Company had receivable balances greater than 10% of its accounts receivable from
the following unaffiliated customers:





June
      30, 2008
            
            
            December
      31, 2007Customer
      A
            
            $
            260,904
            
            
            $
            321,934Customer
      B
            
            
            *
            
            
            
            579,127Customer
      C
            
            
            285,620
            
            
            
            *





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





15
 Index





Foreign
Sales





Included
in the consolidated statements of operations are foreign sales related to
continuing operations of 922,733 and $595,232 for the six months ended June 30,
2008 and 2007, respectively, and $489,235 and $452,202 for the three months
ended June 30, 2008 and 2007, respectively.





Foreign
Inventory





Included
in the consolidated balance sheets are international inventories related to
continuing operations of $216,781 and $196,154 at June 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 $161,346 and
$79,699 were recorded during the six months and three months ended June 30,
2008, respectively.  There is $535,000 remaining of the deferred sale
proceeds to be recorded and collected at June 30, 2008.





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 all of its inventory to New Vad as of June 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 six months ended June
30:





Three
      months ended June 30
            
            
            Six
      months ended June 302008
            
            
            2007
            
            
            2008
            
            
            2007Sales,
      Net
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            736,802Cost
      of good sold
            
            
            -
            
            
            
            123,017
            
            
            
            -
            
            
            
            697,780Gross
      profit
            
            
            -
            
            
            
            (123,017
            )
            
            
            -
            
            
            
            39,022Selling,
      general, and administrative
            
            
            8,421
            
            
            
            (4,567
            )
            
            
            45,491
            
            
            
            269,437Income
      (loss) from operations
            
            
            (8,421
            )
            
            
            (118,450
            )
            
            
            (45,491
            )
            
            
            (230,415
            ) )
      )Other
      income (expense)
            
            
            -
            
            
            
            50,000
            
            
            
            -
            
            
            
            50,000Gain
      on sale of building, net of tax
            
            
            998,950
            
            
            
            -
            
            
            
            998,950
            
            
            
            -Gain
      on sale of equipment
            
            
            -
            
            
            
            163,000
            
            
            
            -
            
            
            
            163,000Gain
      on sale of Vaddio product line
            
            
            79,699
            
            
            
            75,123
            
            
            
            161,346
            
            
            
            152,612Income
      (Loss) and gain from discontinued operations
            
            
            1,070,228
            
            
            
            169,673
            
            
            
            1,114,805
            
            
            
            135,197Provision
      for income taxes
            
            
            -
            
            
            
            (14,000
            )
            
            
            -
            
            
            
            -Gain
      from discontinued operations
            
            $
            1,070,228
            
            
            $
            155,673
            
            
            $
            1,114,805
            
            
            $
            135,197





16
 Index





Assets
and liabilities retained relating to the discontinued operations (Vaddio)
consisted of the following at June 30, 2008 and December 31, 2007:





2008
            
            
            2007Current
      assets retained relating to discontinued operations:Accounts
      receivable
            
            $
            -
            
            
            $
            44,999Inventory
            
            
            -
            
            
            
            298,414Total
            
            $
            -
            
            
            $
            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
            
            $
            204,252
            
            
            $
            148,438Cash
      paid for income taxes
            
            
            -
            
            
            
            5,000Noncash
      investing and financing activitiesProceeds
      from sale of Vaddio fixed assets included in current assets retained
      related to discontinued operations
            
            
            
            
            
            
            163,000Transaction
      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
            
            $
            340,641





17
 Index





Item2: 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.”





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 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.





18
 Index





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.





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
divisional and product line basis.




Selling,
General and Administrative Expenses





Selling, general and administrative
expenses include directly identifiable operating costs and other expenses. The
majority of these costs are fairly consistent from month to month, with the
exception ofadvertising
andsales 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.
Other costs consist primarily of interest on the existing line of credit. The
interest rate on the credit facility floats with prime, at prime plus
..75%.





Income
(Loss) from Operations





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





Gain
(Loss) from Discontinued Operations





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





19
 Index





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 and quality. These new
large retail store expansion plans have and will continue to provide significant
opportunities for growth at the expense of the smaller owner operator
establishments. We anticipate the number of customers within the Outdoor
recreation products market to continue to reduce as the average size of our
customer continues to increase. This consolidation puts significant pressure on
the business with its increased reliance on fewer customers. Failure to continue
business with an existing customer or even maintain an existing sales level with
a customer could have a significant impact on earnings.





Increased Inventories. As of
June 30, 2008 inventory has increased in comparison to June 30,
2007.  Inventory increased primarily relating to the purchases of Cass
Creek, Castaic and MarCum.  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.
An inventory turnover ratio greater than 2.0 maybe difficult to
achieve as the Company experiences approximately a twelve-week lead time to land
goods from foreign markets. 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 continue to increase, consumers may opt to reduce the
amount of discretionary spending on entertainment items and take fewer
vacations. Increased oil prices continue to impact the costs of material
components. We rely on outsourced production and the costs for the
associated shipping could materially impact the cost of product and gross profit
margins.





Increased interest costs.Given the cyclical nature of our business we are reliant on a credit
facility. As the Company continues to grow, additional borrowings maybe
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 netincome (loss)for the three monthsand six monthsendedJune30, 2008 and June 30, 2007:








(in
      thousands)
            
            Three
      months ended June 30
            
            
            Increase
      (Decrease)
            
            
            Six
      months ended June 30
            
            
            Increase
      (Decrease)2008
            
            
            2007
            
            
            
            
            
            2008
            
            
            2007NET
      SALES
            
            $
            1,450
            
            
            $
            768
            
            
            
            88.8
            %
            
            $
            3,817
            
            
            $
            2,524
            
            
            
            51.2
            %GROSS
      PROFIT (LOSS)
            
            
            (2
            )
            
            
            (109
            )
            
            
            98.2
            %
            
            
            647
            
            
            
            200
            
            
            
            223.5
            %LOSS
      FROM OPERATIONS
            
            
            (898
            )
            
            
            (970
            )
            
            
            7.4
            %
            
            
            (1,366
            )
            
            
            (1,627
            )
            
            
            16.0
            %NET
      INCOME (LOSS)
            
            $
            74
            
            
            $
            (1,152
            )
            
            
            106.4
            %
            
            $
            (518
            )
            
            $
            (1,601
            )
            
            
            67.6
            %





20
 Index





The following table presents our gross
profit, loss from operations and net loss as a percentage of net sales for the
three months and six months ended June 30, 2008 and June 30,
2007:





Three
      months ended June 30
            
            
            Six
      months ended June 302008
            
            
            2007
            
            
            2008
            
            
            2007GROSS
      PROFIT (LOSS)
            
            
            (0.1
            %)
            
            
            (14.2
            %)
            
            
            17.0
            %
            
            
            7.9
            %LOSS
      FROM OPERATIONS
            
            
            (61.9
            %)
            
            
            (126.3
            %)
            
            
            (35.8
            %)
            
            
            (64.5
            %)NET
      LOSS
            
            
            5.1
            %
            
            
            (150.0
            %)
            
            
            (13.6
            %)
            
            
            (63.4
            %)








Net sales
for the quarter ending June 30, 2008 of $1,450,000 were up by $682,000, or 88.8%
compared to net sales of $768,000 during the same period last
year.  Year to date net sales for the six months ending June 30, 2008
of $3,817,000 were up by $1,293,000, or 51.2% compared to net sales of
$2,524,000 during the same period last year.





Net sales
gains for the second quarter were primarily driven through acquisitions and
strong sales of viewing systems. Recent acquisitions during the last two years
have produced net sales gains during the second quarter of 2008 totaling
$453,000 with Cass Creek, Crazy Crank/Castaic and Fish Hawk delivering net sales
gains of $267,000, $154,000 and $32,000, respectively. In addition, net sales of
viewing systems were up by $312,000 or 136.8%. Overall, net sales gains during
the second quarter were also favorably impacted by actual returns of products
which are down by 57.3% compared to the same period last year.





Net sales
gains for the six months ending June 30, 2008 were also driven through
acquisitions and strong sales of viewing systems. With recent acquisitions
producing net sales gains during the first half  of 2008 totaling
$1,035,000 with Cass Creek, Crazy Crank/Castaic and Fish Hawk delivering net
sales gains of $790,000, $196,000 and $49,000 respectively. In addition, net
sales of viewing systems were up by $426,000 or 28.1%. Overall, net sales gains
during the first half of 2008 were also favorably impacted by actual returns
which are down by 35.1% compared to the same period last year.





Gross
loss yield during the second quarter ending June 30, 2008 of ($2,000), or (0.1%)
of net sales, compared favorably to ($109,000), or (14.2%) of net sales, during
the second quarter of 2007. Year to date gross profit yield during the first
half of 2008 of $647,000, or 17.0% of net sales, compared favorably to
$200,000, or 7.9% of net sales, during the same period last
year.  Gross profit gains during the aforementioned periods were
primarily driven by higher margins associated with the acquisition of the Cass
Creek product line and the favorable impact of less returns.





Selling,
General and Administrative Expenses





Total
selling, general and administrative expenses for the quarter ending June 30,
2008 of $896,000, or 61.9% of sales, were up from spending of $861,000, or
112.1% of sales during the comparative period in fiscal 2007 and continue to
improve favorably on a percentage of sales basis. Selling, general and
administrative costs have increased due to higher commissions, higher research
& development expenses, and higher sales management expenses and were
partially offset by lower advertising and accounting costs. Commission expenses
have increased due to and proportionate to sales gains. Sales Management
expenses are up due to the acquisition of Castaic and a planned expansion in the
Muskie fishing category.  Advertising expenses have decreased as part
of a corporate strategy to reduce overall costs and allocate spending more
precisely by sales category and margin performance. Accounting fees were down
relative the comparative period in fiscal 2007 and were primarily as a result of
the timing of the expenses related to the preparation of the form 10-KSB, which
were expensed during the first quarter. Research and development expenses
increased to $50,000 for the three months ended June 30, 2008 from $37,000 for
the three months ended June 30, 2007.





Total
selling, general and administrative expenses for the six months ending June
30,2008 of $2,013,000, or 52.7% of sales, were up from spending of $1,827,000,
or 72.4% of sales during the comparative period in fiscal
2007.  Selling, general and administrative costs have increased due to
higher commissions, higher research & development expenses, and higher sales
management expenses and were partially offset by lower advertising
costs.  Research and development expenses increased to $110,000 for
the six months ended June 30, 2008 from $51,000 for the six months ended June
30, 2007.





21
 Index





Liquidity
and Capital Resources





The
Company had a cash balance of $0 at June 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 provided from operations was $983,000 for the six
months ended June 30, 2008.  Cash provided from operating activities
during the first six months of 2008 were primarily relating to depreciation and
amortization of $383,000, , a decrease in accounts receivable of $1,987,000,
decrease in inventories of $690,000, and a decrease in prepaid expenses of
$89,000. These amounts were partially offset by operating activities consuming
cash, including a net loss of $518,000, gain on sale of discontinued operations
of $161,000, net gain after tax on building sale of $999,000, the reduction of
accounts payable of $170,000, lower accrued expenses of $309,000, and payments
of $36,000 of deferred retirement benefits.





Cash
provided by investing activities was $1,420,000 for the six months ended June
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 $479,000, 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 $317,000 and deferred sale proceeds associated with the
discontinued operations of $161,000.





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.





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, general intangibles of MarCum for a purchase
price of approximately $760,000.




In
addition, the Company purchased $243,000 of property, equipment, and intangibles
during the six months ended June 30, 2008.





Cash used
in financing activities was $2,534,000 for the six months ended June 30, 2008.
Financing activities consuming cash include net payments on the Company’s line
of credit of $574,000, pay off of the building mortgage totaling $1,900,000 and
principal payments on other long-term debt of $105,000.  Financing
activities providing cash include an increase of checks issued in excess of cash
in bank of $45,000.





As of
June 30, 2008, working capital increased to $1,961,000 from $1,062,000 at
December 31, 2007. The Company’s current ratio, as of June 30, 2008, is 1.59
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 $518,000 and the
cost of acquisitions.





The
Company maintains a line of credit for financing inventory and accounts
receivable up to $6,000,000 at prime plus .75%.  The prime rate at
June 30, 2008 was 5.00%.  As of June 30, 2008, the Company had the
ability to borrow amounts of up to approximately $2,655,000 under the facility
for working capital requirements.  The loan is secured against the
accounts receivable, inventory, equipment and other assets of the
Company. The $2,000,000 mortgage secured against the New Hope building was
paid off upon closing of the building sale. Borrowings under the line are
subject to advanced rates of 75% of eligible accounts receivable and 50% of
eligible inventory.  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, and the
Company is in compliance with, the following affirmative covenant, as of June
30, 2008, minimum net worth (including subordinated debt) of $5,500,000, and
minimum tangible net worth of $2,200,000.  Management believes
short-term liquidity needs of the Company will be provided through working
capital and the line of credit, and will be sufficient to finance operations for
a period of at least the next 12 months.Management
anticipates continued advances against the line of credit to fund anticipated
sales growth in future quarters.





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 June 30, 2008, the Company has received $215,000 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 June 30, 2008, the entire inventory has been sold and paid to Nature
Vision.





22
 Index





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





We
incurred a net loss for the six months ended June 30, 2008 and 2007 of $518,000
and $1,601,000, respectively.  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 efforts to reduce
expenses.  In addition, we believe that other sources of liquidity are
available, which may include the expansion of our credit
facility.  However, there is no assurance that these other sources of
liquidity will be available or on terms acceptable to the
Company.





Management
believes that existing, current and future lending capacity and cash generated
from operations will supply sufficient cash flow to meet short-term and
long-term debt obligations, working capital, capital expenditure and operating
requirements for at least the next 12 months.





Off-Balance
Sheet Arrangements





As
of June 30, 2008, there were no off-balance sheet arrangements,
unconsolidated subsidiaries and commitments or guaranties of other
parties.





CriticalAccounting
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





Item4T: 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, David M. Kolkind, 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
Kolkind concluded that our disclosure controls and procedures are
effective.





23
 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 June 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 June
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
control 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.




Item4.    Submission of Matters to a Vote of Security
Holders.




(a)  The
registrant held its annual meeting of shareholders on May 2, 2008.




(b)  Not
applicable.




(c)  Set
forth below are the matters voted upon at the registrant’s annual
meeting.  All proposals were approved by the registrant’s
shareholders.




Proposal No. 1 –
Election of one Class II director to hold office for three-year term or until is
successor is elected or appointed:




Common
shares voting in favor of Scott S. Meyers: 2,110,381.


Common
shares voting to withhold authority: 82,751.




(d)  Not
applicable.




Item 5.    Other
Information.  Not applicable.




Item6.    Exhibits.




Listing
of Exhibits:




10.1
            Purchase
      Agreement, dated March 10, 2008, between Nature Vision, Inc. and Natzel,
      LLC (previously filed as Exhibit 10.1 to the Registrant's Report on Form
      8-K dated March 11, 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.





24
 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:  August
      7, 2008
            By:
            /s/ Jeffrey P. ZernovIts:  Chief
      Executive Officer and PresidentDate:  August
      7, 2008
            By:
            /s/ David M. KolkindIts:  Chief
      Financial Officer




25