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 March 31, 2009
 
 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.
 þYesoNo
 
 Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files).YesoNoo
 
 Indicate by check mark whether the
registrant is alarge
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 Rule12b-2 of the Exchange
Act.
 Large accelerated
      filero
                  Accelerated filero
                  Non-accelerated filero
                  Smaller reporting
      companyþ
 Indicate by check mark whether the
registrant is a shell company (as defined in Rule12b-2 of the Exchange
Act).
 oYesþNo
 
 The number of shares of issuer’s common
stock, par value $0.16 per share, outstandingasofMay 9, 2009, was
2,312,583.  The registrant has no other classes of securities
outstanding.
  
  NATUREVISION, INC.
 INDEX
  PART
      I
                                      
                                      
                                      
                                      FINANCIAL
      INFORMATION
                                      Page
      NumberItem
      1:
                                      
                                      Condensed Financial StatementsCondensed Consolidated Balance Sheets - March 31, 2009 and
      December 31, 2008
                                      1Condensed Consolidated Statements of Operations - Three Months
      Ended March 31, 2009 and 2008
                                      2Condensed Consolidated Statements of Cash Flows - Three Months
      Ended March 31, 2009 and 2008
                                      3Notes to Condensed Consolidated Financial
      Statements
                                      4Item
      2:
                                      
                                      Management's Discussion and Analysis of Financial Condition and
      Results of Operations
                                      19Item
      3:
                                      
                                      Quantitative and Qualitative Disclosures About Market
      Risk
                                      23Item
      4T:
                                      
                                      Controls and Procedures
                                      23PART
      II
                                      
                                      
                                      
                                      OTHER
      INFORMATIONItem
      1A:
                                      
                                      Risk Factors
                                      24Item
      6:
                                      
                                      Exhibits
                                      28Signatures
                                      29
  Index
  Part I –
FINANCIAL INFORMATION
 
 Item
1: Financial Statements
 
 Nature Vision, Inc. and
Subsidiaries
 CondensedConsolidated Balance
Sheets
 March 31, 2009 and December 31,2008
 
 UnauditedMarch 31,
                    
                    
                    December
31,2009
                    
                    
                    2008ASSETSCURRENT
      ASSETSCash
      and Cash Equivalents
                    
                    $
                    45,981
                    
                    
                    $
                    -Accounts
      Receivable, net
                    
                    
                    1,048,665
                    
                    
                    
                    2,962,869Other
      Receivables
                    
                    
                    3,023
                    
                    
                    
                    4,260Inventories,
      net
                    
                    
                    3,952,049
                    
                    
                    
                    4,313,759Current
      Portion of Prepaid Expenses
                    
                    
                    169,873
                    
                    
                    
                    221,443Current
      Assets Retained Relating to Discontinued Operations
                    
                    
                    -
                    
                    
                    
                    236,927Total
      Current Assets
                    
                    
                    5,219,591
                    
                    
                    
                    7,739,258PROPERTY
      AND EQUIPMENT, NET
                    
                    
                    1,804,777
                    
                    
                    
                    1,901,650NON-CURRENT
      ASSETSPrepaid
      Expenses, net of Current Portion
                    
                    
                    28,660
                    
                    
                    
                    32,422Intangibles
      - net
                    
                    
                    918,922
                    
                    
                    
                    965,430Total
      Non-Current Assets
                    
                    
                    947,582
                    
                    
                    
                    997,852TOTAL
      ASSETS
                    
                    $
                    7,971,950
                    
                    
                    $
                    10,638,760LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIESChecks
      Issued in Excess of Cash in Bank
                    
                    $
                    -
                    
                    
                    $
                    22,236Current
      Portion of Long-Term Debt
                    
                    
                    273,846
                    
                    
                    
                    258,405Note
      Payable – Related Party
                    
                    
                    450,000
                    
                    
                    
                    700,000Current
      Portion of Deferred Retirement Benefits
                    
                    
                    57,658
                    
                    
                    
                    60,438Line
      of Credit, Bank
                    
                    
                    1,911,823
                    
                    
                    
                    3,084,956Accounts
      Payable
                    
                    
                    564,843
                    
                    
                    
                    679,673Accrued
      Payroll and Payroll Taxes
                    
                    
                    130,500
                    
                    
                    
                    107,858Accrued
      Sales and Warranty Reserve
                    
                    
                    405,000
                    
                    
                    
                    450,000Accrued
      Expenses
                    
                    
                    381,209
                    
                    
                    
                    559,377Total
      Current Liabilities
                    
                    
                    4,174,879
                    
                    
                    
                    5,922,943LONG-TERM
      LIABILITIESLong-term
      Debt, Net of Current Portion
                    
                    
                    446,882
                    
                    
                    
                    525,401Note
      Payable – Related Party
                    
                    
                    937,313
                    
                    
                    
                    924,775Deferred
      Retirement Benefits, Net of Current Portion
                    
                    
                    407,873
                    
                    
                    
                    422,776Total
      Non-Current Liabilities
                    
                    
                    1,792,068
                    
                    
                    
                    1,872,952Total
      Liabilities
                    
                    
                    5,966,947
                    
                    
                    
                    7,795,895COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS’
      EQUITYCommon
      Stock, $.16 Par Value per Share 25,000,000 Shares Authorized Common Shares
      Issued and Outstanding at March 31, 2009 and December 31, 2008 were
      2,312,583
                    
                    
                    370,013
                    
                    
                    
                    370,013Additional
      Paid-In Capital
                    
                    
                    7,144,085
                    
                    
                    
                    7,141,368Accumulated
      Deficit
                    
                    
                    (5,509,095
                    )
                    
                    
                    (4,668,516
                    )Total
      Stockholders’ Equity
                    
                    
                    2,005,003
                    
                    
                    
                    2,842,865TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                    
                    $
                    7,971,950
                    
                    
                    $
                    10,638,760
 
 See accompanying notes to condensedconsolidated financial
statements.
  1
 Index
  NatureVision, Inc. and Subsidiaries
 Condensed
Consolidated Statements of Operations (Unaudited)
 Three
Months Ended March 31, 2009 and 2008
 
 2009
                        
                        
                        2008SALES,
      NET
                        
                        $
                        1,879,062
                        
                        
                        $
                        2,367,065COST
      OF GOOD SOLD
                        
                        
                        1,633,956
                        
                        
                        
                        1,718,483GROSS
      PROFIT
                        
                        
                        245,106
                        
                        
                        
                        648,582OPERATING
      EXPENSESSales
      and Marketing
                        
                        
                        406,030
                        
                        
                        
                        520,042Research
      and Development and Engineering
                        
                        
                        201,897
                        
                        
                        
                        127,613General
      and Administrative
                        
                        
                        402,844
                        
                        
                        
                        469,232Total
      Operating Expenses
                        
                        
                        1,010,771
                        
                        
                        
                        1,116,887LOSS
      FROM OPERATIONS
                        
                        
                        (765,665
                        )
                        
                        
                        (468,305
                        )OTHER
      INCOME (EXPENSE)Interest
      expense
                        
                        
                        (136,989
                        )
                        
                        
                        (168,550
                        )Other
      income
                        
                        
                        2,743
                        
                        
                        
                        -Net
      Other Expenses
                        
                        
                        (134,246
                        )
                        
                        
                        (168,550
                        )LOSS
      FROM CONTINUING OPERATIONS BEFORE TAXES
                        
                        
                        (899,911
                        )
                        
                        
                        (636,855
                        )PROVISION
      FOR INCOME TAX BENEFIT
                        
                        
                        -
                        
                        
                        
                        -LOSS
      FROM CONTINUING OPERATIONS
                        
                        
                        (899,911
                        )
                        
                        
                        (636,855
                        )GAIN
      FROM DISCONTINUED OPERATIONS, NET
                        
                        
                        59,332
                        
                        
                        
                        44,577NET
      LOSS
                        
                        $
                        (840,579
                        )
                        
                        $
                        (592,278
                        )Loss
      from continuing operations per common shareBasic
                        
                        $
                        (0.39
                        )
                        
                        $
                        (0.28
                        )Diluted
                        
                        $
                        (0.39
                        )
                        
                        $
                        (0.28
                        )Income
      (loss) from discontinued operations per common shareBasic
                        
                        $
                        0.03
                        
                        
                        $
                        0.02Diluted
                        
                        $
                        0.03
                        
                        
                        $
                        0.02Net
      loss per common shareBasic
                        
                        $
                        (0.36
                        )
                        
                        $
                        (0.26
                        )Diluted
                        
                        $
                        (0.36
                        )
                        
                        $
                        (0.26
                        )Weighted
      average common sharesBasic
                        
                        
                        2,312,583
                        
                        
                        
                        2,312,583Diluted
                        
                        
                        2,312,583
                        
                        
                        
                        2,312,583
 
 See
accompanying notes to condensed consolidated financial
statements
  2
 Index
  NatureVision, Inc. and Subsidiaries
 Condensed
Consolidated Statements of Cash Flows (Unaudited)
 Three
Months Ended March 31, 2009 and 2008
  2009
                    
                    
                    2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                    
                    $
                    (840,579
                    )
                    
                    $
                    (592,278
                    )Adjustments
      to reconcile net loss to net cash flows from operating
      activitiesDepreciation
      and amortization
                    
                    
                    171,062
                    
                    
                    
                    168,864Gain
      on sale of discontinued operations
                    
                    
                    (59,332
                    )
                    
                    
                    (81,647
                    )Loss
      on disposal of property, plant, and equipment
                    
                    
                    12,750
                    
                    
                    
                    -Increase
      in bad debt reserve
                    
                    
                    15,000
                    
                    
                    
                    -Stock
      based compensation
                    
                    
                    2,717
                    
                    
                    
                    1,589Amortization
      of original issue discount
                    
                    
                    12,538
                    
                    
                    
                    20,841Changes
      in operating assets and liabilitiesAccounts
      receivable
                    
                    
                    1,899,204
                    
                    
                    
                    1,996,151Other
      receivable
                    
                    
                    1,237
                    
                    
                    
                    -Inventories,
      net
                    
                    
                    361,710
                    
                    
                    
                    686,699Prepaid
      expenses
                    
                    
                    55,332
                    
                    
                    
                    64,756Accounts
      payable
                    
                    
                    (114,830
                    )
                    
                    
                    (254,379
                    )Accrued
      payroll and payroll taxes
                    
                    
                    22,642
                    
                    
                    
                    13,220Accrued
      sales and warranty reserve
                    
                    
                    (45,000
                    )
                    
                    
                    (90,000
                    )Accrued
      expenses
                    
                    
                    (178,168
                    )
                    
                    
                    (102,271
                    )Payments
      on deferred retirement benefits
                    
                    
                    (17,683
                    )
                    
                    
                    (18,041
                    )Net
      Cash Flows from Operating Activities
                    
                    
                    1,298,600
                    
                    
                    
                    1,813,504CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of property and equipment
                    
                    
                    (40,175
                    )
                    
                    
                    (91,059
                    )Purchase
      of assets associated with Castaic Softbait Brand
                    
                    
                    -
                    
                    
                    
                    (340,641
                    )Proceeds
      from sale of discontinued operations, net
                    
                    
                    296,259
                    
                    
                    
                    81,647Net
      proceeds from sale of working capital associated with discontinued
      operations
                    
                    
                    -
                    
                    
                    
                    234,547Purchases
      of intangible assets
                    
                    
                    (256
                    )
                    
                    
                    (6,000
                    )Net
      Cash Flows from (used in) Investing Activities
                    
                    
                    255,828
                    
                    
                    
                    (121,506
                    )CASH
      FLOWS FROM FINANCING ACTIVITIESIncrease
      (decrease) in checks issued in excess of cash in bank
                    
                    
                    (22,236
                    )
                    
                    
                    13,168Net
      payments on line of credit, bank
                    
                    
                    (1,173,133
                    )
                    
                    
                    (1,751,462
                    )Principal
      payments on long-term debt
                    
                    
                    (63,078
                    )
                    
                    
                    (85,191
                    )Principal
      payments on note payable – related party
                    
                    
                    (250,000
                    )
                    
                    
                    -Net
      Cash Flows from (used in) Financing Activities
                    
                    
                    (1,508,447
                    )
                    
                    
                    (1,823,485
                    )Net
      Change in Cash and Cash Equivalents
                    
                    
                    45,981
                    
                    
                    
                    (131,487
                    )CASH
      AND CASH EQUIVALENTS - January 1, 2009 and 2008
                    
                    
                    -
                    
                    
                    
                    131,487CASH
      AND CASH EQUIVALENTS - March 31, 2009 and 2008
                    
                    $
                    45,981
                    
                    
                    $
                    -
  See
accompanying notes to condensed consolidated financial
statements.
  3
 Index
  NATUREVISION, INC. AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2009 and 2008 (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 theUnited StatesandCanada.The Company contracts with outside
organizations for the manufacture and sale ofthe majority ofits products.The geographic market in which the
Company competes consists of the entireUnited StatesandCanadaand, to a lesser extent some foreign
countries.
 
 Because
of seasonal and other factors, the results of operations for the three months
ended March 31, 2009 are not necessarily indicative of the results to be
expected for the Company's full 2009 fiscal year.
 
 GOING
CONCERN
 
 The
accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates
the realization of assets and the liquidation of liabilities in the normal
course of business.  We incurred net losses of $841,000 and $592,000,
respectively, for the three months ended March 31, 2009 and 2008 and had an
accumulated deficit of $5.5 million as of March 31, 2009.  We have
managed our liquidity during the first part of 2009 through cost reduction
initiatives and the proceeds from a related party note payable.  The
Company is currently in default of the remaining $450,000 of the note and is in
negotiations to extend the remaining $450,000 of the CEO’s note (Note
6).
 
 The
Company has historically been a seasonal business with the majority of the
Company’s revenue being realized in the fourth quarter.  The general
economic conditions, including a lowering of overall consumer confidence as
consumers continue to pull back discretionary spending, our historical high
working capital usage in the first nine months of the fiscal year, competition
in certain product lines, and the higher than anticipated 2008 and 2007
acquisition transition costs have impacted our operating results.  In
addition to the factors described above, the global credit market crisis has
impacted our ability to find subordinated debt or other additional
financing.  We have not seen an improvement in the general economic
conditions that impact our Company through April 2009.
 
 Despite
cost reduction initiatives, the Company will be unable to pay its obligations in
the normal course of business or service its debt in a timely manner throughout
2009 without raising additional debt or equity capital.
 
 The
Company is currently evaluating strategic alternatives that include the
following: (i) raising of capital, or (ii) the sale of the Company to another
entity.  This process is ongoing and may be lengthy and has inherent
costs.  There can be no assurance that the exploration of strategic
alternatives will result in any specific action to alleviate the Company’s 12
month working capital needs or result in any other transaction.
 
 INTERIM
FINANCIAL INFORMATION
 
 The
accompanying condensed consolidated balance sheet at March 31, 2009 and the
condensed consolidated statements of operations and cash flows for the three
months ended March 31, 2009 and 2008 are unaudited. The unaudited interim
condensed consolidated balance sheet and condensed 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 three months ended
March 31, 2009 and 2008. The financial data and other information disclosed in
these notes to the condensed consolidated financial statements related to these
periods are unaudited.  Operating results for the three months ended
March 31, 2009 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2009. The condensed consolidated
financial statements should be read in conjunction with the audited financial
statements for the year ended December 31, 2008 included in the Annual Report on
Form 10-K of the Company filed with the Securities and Exchange
Commission.
 
 PRINCIPLES OF
CONSOLIDATION
 
 Thecondensedconsolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary. All significant inter-company
transactions and balances have been eliminated in
consolidation.
  4
 Index
  FINANCIAL
INSTRUMENTS
 
 The carrying amounts for all financial
instruments approximate fair value. The carrying amounts for cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses
approximate fair value because of the short maturity of these
instruments. The fair value
of long-term debt, notes payable, line of credit-bank, and deferred liabilities
- retirement benefits approximates the carrying amounts based upon the Company’s
expected borrowing rate for debt with similar remaining maturities and
comparable risk.
 
 ACCOUNTS RECEIVABLE
 
 The Company reviews
customers' credit history before extending unsecured credit and establishes an
allowance for uncollectible accounts based upon factors surrounding the credit
risk of specific customers and other information.Accounts receivable areduebased on agreed upon
customer terms. Accounts receivable
are considered past dueonce they are over the
due date of these terms. TheCompany does not accrue
interest on past due accounts receivable. If accounts receivable in excess of
the provided allowance are determined uncollectible, they are charged to expense
in the year that determination is made. Accounts receivable are written off
after all collection efforts have failed. Accounts receivable have been reduced
by an allowance for uncollectible accounts of approximately$52,500 and $37,500 at
March 31, 2009 and December 31, 2008, respectively.
 
 INVENTORIES
 
 Inventories consist of raw materials and
finished goods and are valued atthe lower of standard cost (which
approximatesthe 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, our customer base, customer needs,
general economic conditions, and the level of success of certain sales
programs,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.
 
 GOODWILL
 
 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.
 
 During the fourth quarter of fiscal
2008, the Company performed its annual goodwill impairment test with the
assistance of a third-party valuation firm.  Due to reduced growth
expectations resulting from weakening economic conditions and anticipated lower
impact on revenues and profitability in future years, the Company recorded a
non-cash charge of $666,373 in the fourth quarter of fiscal 2008 for goodwill
impairment.  The balance of goodwill was $0 as of March 31, 2009 and
December 31, 2008, respectively.
 
 INTANGIBLE ASSETSAND OTHER ASSETS
 
 Other intangible assets consisted
primarily of patents and identifiable intangible assets including customer
lists,trademarks,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.
 
 Thelong-term portion of prepaid expenses
consists of deferred financing costsof $28,660 and $32,422 at March31, 2009 and December 31, 2008,
respectively.
 
 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.
  5
 Index
  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.  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.Net intangible assets and long-lived
assets amounted to $2.7million and $2.9millionas of March 31, 2009 and December 31,
2008, respectively.
 
 We had an
independent appraisal firm complete an appraisal of goodwill and other
intangibles as of November 30, 2008. Due to reduced growth expectations
resulting from weakening economic conditions and anticipated lower impact on
revenues and profitability in future years, we recognized a non-cash impairment
charge of $671,877 for our long-lived assets, including intangible assets,
during the year ended December 31, 2008.We did not recognize any
impairment charges for our long-lived assets during thethree months ended March 31,
2009.   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
anadditionalimpairment charge.  Such
impairment would adversely affect our earnings.
 
 DISCONTINUED
OPERATIONS
 
 On February 5, 2007, the Company sold
certain assets and transferred certain liabilities related to its Vaddio
division.
 
 These assets met the requirements of
SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets" as
being held for sale. Operations and cash flows were eliminated as a result of
the sales and the Company did not have any significant involvement in the
operations after the sales. The results of the Vaddio product lines are
presented on a historical basis as a separate line in the consolidated
statements of operations and the consolidated balance sheets entitled
"Assets/Liabilities sold relating to discontinued operations" and
“Assets/Liabilities retained relating to discontinued operations”. In accordance
with EITF 87-24, “Allocation of Interest to Discontinued Operations”, the
Company elected to not allocate consolidated interest expense to the
discontinued operations where the debt is not directly attributed to or related
to the discontinued operations.All of the financial information in the
consolidated financial statements and notes to the consolidated financial
statements has been revised to reflect only the results of continuingoperations (see Note
12).
 
 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 totwoyearsfrom 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 in the accompanying consolidated statements of operations.
Revenues are reported net of discounts and allowances. The Company’s revenue is
recognized in accordance with generally accepted accounting principles as
outlined in the SEC’s Staff Accounting Bulletin No. 104 “Revenue Recognition,”
which requires that four basic criteria be met before revenue can be recognized:
(i) persuasive evidence of an arrangement exists; (ii) the price is fixed or
determinable; (iii) reasonably assured it is collectible; and (iv) product
delivery has occurred. The Company recognizes revenue as products are shipped
based on FOB shipping point terms when title passes to
customers.
 
 In June 2006, the Financial Accounting
Standards Board (FASB) ratified the consensus of Emerging Issues Task Force
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 gross
basis.
  6
 Index
  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 $405,000 and $450,000 at March 31, 2009 and December
31, 2008, 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 thethree months ended March 31, 2009 and
2008.
 
 
 2009
                
                
                2008Accrued balance -
      beginning
                
                $
                450,000
                
                
                $
                300,000Provision
                
                
                85,000
                
                
                
                201,000Claims
      incurred
                
                
                (130,000
                )
                
                
                (291,000
                )Accrued balance -
      ending
                
                $
                405,000
                
                
                $
                210,000
 
 RESEARCH AND
DEVELOPMENT
 
 The Company expenses all costs related
to product research and development as incurred.
 
 STOCK-BASED
COMPENSATION
 
 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 thethree months ended March
31, 2009 and 2008.
 
 The following assumptions were used to
calculate the value of the options granted during thethree monthsendedMarch31, 2008: dividend yield of 0%,
risk-free interest rate of 3%, expected life equal to3.5years, and volatility of 76%.There were no stock options granted
during the three months ended March 31, 2009.
 
 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.  The Company recognized $2,717 and $1,590 of stock based
compensation for the three months ended March 31, 2009 and 2008,
respectively.  As of March 31, 2009, there was $25,111 of total
unrecognized compensation costs related to the outstanding options, which is
expected to be recognized over a period of 31 months.
  7
 Index
  The
weighted average fair value of stock options granted on the date of grant during
the three months ended March 31, 2008 was $.89.
 
 Stock options issued to non-employees
(which no options were issued to non-employees), are accounted for in accordance
with Emerging Issues Task Force (EITF) 96-18.
 
 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 years endedMarch 31, 2009 and 2008. Anti-dilutive options and warrants
were369,455and219,450at March 31, 2009 and 2008, 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.  There is a full valuation allowance recorded
as ofMarch 31, 2009 and
December 31, 2008.
 
 In June 2006, the Financial Accounting
Standards Board, or 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.
To the extent interest and penalties would be assessed by taxing authorities on
any underpayment of income taxes, such amounts would be accrued and classified
as a component of income tax expenses on the consolidated statement of
operations. The Company has no material amount of accrued liabilities for
interest or penalties recorded related to unrecognized tax
benefits.
 
 The federal and state tax returns are
open to examination for the years 2005-2008.
 
 RECLASSIFICATION
 
 Certain prior year amounts have been
reclassified to conform to the 2009 presentation.  The
reclassification relates to the breakout of operating expenses on the statement
of operations into the following categories:  sales and marketing,
research and development and engineering, and general and
administrative.  The Company’s opinion is that this breakout provided
insight into the different categories of operating expenses the Company
incurs.
 
 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 differsignificantlyfrom those
estimates. For the Company, significant estimates include the allowance for
doubtful accounts receivable, reserves for inventory valuation,impairment of goodwill
and long lived assets,reserves for sales
returns, reserves for warranty services, and the valuation allowance for
deferred tax assets.
  8
 Index
  RECENT ACCOUNTING
PRONOUNCEMENTS
 
 During
December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
Combinations” (“SFAS 141 (Revised 2007)”).  While this statement retains the fundamental requirement of
SFAS 141 that the acquisition method of accounting (which SFAS 141 called thepurchase
method) be used for all
business combinations, SFAS 141 (Revised 2007) now establishes the principles
and requirements for how an acquirer in a business
combination:  recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interests in the acquiree; recognizes and measures the goodwill acquired in the
business combination or the gain from a bargain purchase; and determines what
information should be disclosed in the financial statements to enable the users
of the financial statements to evaluate the nature and financial effects of the
business combination.SFAS 141
(Revised 2007) is effective for fiscal years beginning on or after December 15,
2008.  The adoption of SFAS 141 (Revised 2007) did not have a material
impact on the Company’s financial statements.
 
 During
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51” (“SFAS
160”).  This statement establishes accounting and reporting
standards for noncontrolling interests in subsidiaries and for the
deconsolidation of subsidiaries and clarifies that a noncontrolling interest in
a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements.  This
statement also requires expanded disclosures that clearly identify and
distinguish between the interests of the parent owners and the interests of the
noncontrolling owners of a subsidiary.SFAS 160 is effective
for fiscal years beginning on or after December 15, 2008.  The
adoption of SFAS 160 did not have a material impact on the Company’s financial
statements.
 
 In
February 2008, the FASB issued FASB Staff Position (“FSP”) No. 157-2, “Effective
Date of FASB Statement No. 157” (“FSP 157-2”), which delays the effective date
of SFAS 157 until January 1, 2009 for all non-financial assets and non-financial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis.  These non-financial
items include assets and liabilities such as reporting units measured at fair
value in a goodwill impairment test and non-financial assets acquired and
liabilities assumed in a business combination.  The adoption of the
remainder of SFAS 157 did not have a material impact on the Company’s financial
statements.
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities, an amendment of FAS 133” (“SFAS 161”).  This
statement changes the disclosure requirements for derivative instruments and
hedging activities.  Entities are required to provide enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows.  SFAS 161 is effective for
fiscal years beginning on or after November 15, 2008.  The adoption of
SFAS 161 did not have a material impact on the Company’s financial
statements.
 
 In April
2008, the FASB issued FSP No. 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP 142-3”), which amends the factors an entity should
consider in developing renewal or extension assumptions used in determining the
useful life of recognized intangible assets under FASB Statement No. 142,
“Goodwill and Other Intangible Assets”.  This new guidance applies
prospectively to intangible assets that are acquired individually or with a
group of other assets in business combinations and asset
acquisitions.  FAS 142-3 is effective for financial statements issued
for fiscal years and interim periods beginning after December 15,
2008.  The adoption of FAS 142-3 did not have a material impact on the
Company’s financial statements.
 
 In
September 2008, the FASB issued FSP No. 133-1 and FASB Interpretation No. 45-4
(“FSP SFAS 133-1 and FIN 45-4”), “Disclosures about Credit Derivatives and
Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of the Effective Date of FASB
Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to
Others”, to require additional disclosure about the current status of the
payment/performance risk of a guarantee.  The provisions of the FSP
that amend SFAS 133 and FIN 45 and effective for reporting periods ending after
November 15, 2008.  FSP SFAS 133-1 and FIN 45-4 also clarifies the
effective date in SFAS 161.  Disclosures required by SFAS 161 are
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008.  The adoption of FSP SFAS 133-1 and
FIN 45-4 did not have a material impact on the Company’s financial
statements.
 
 In
December 2008, the FASB issued FSP No. 140-4 and FIN 46R-8 (“FSP 140-4 and FIN
46R-8”), “Disclosures by Public Entities (Enterprises) about Transfers of
Financial Assets and Interests in Variable Interest Entities.”  FSP
140-4 and FIN 46R-8 require additional disclosures about transfers of financial
assets and involvement with variable interest entities (“VIE’s”).  The
requirements apply to transferors, sponsors, servicers, primary beneficiaries
and holders of significant variable interests in a variable interest entity or
qualifying special purpose entity.  Disclosures required by FSP 140-4
and FIN 46R-8 are effective for the Company in the first quarter of fiscal
2009.  Because the Company has no VIE’s, the adoption did not have a
material impact the Company’s financial statements.
  9
 Index
  In
January 2009, the Financial Accounting Standards Board (“FASB”) approved FASB
Accounting Standards Codification (the “Codification”), which is effective July
1, 2009.  Other than resolving certain minor inconsistencies in
current U.S. GAAP, the Codification is not supposed to change GAAP, but is
intend to make it easier to find and research GAAP applicable to a particular
transaction or specific accounting issue.  The Codification is a new
structure which takes accounting pronouncements and organizes them by
approximately 90 accounting topics.  We do not expect the Codification
to have a material impact on our financial position or results of
operations.
 
 In April
2009, the FASB issued FASB Staff Position SFAS 107-1 (“FSP SFAS 107-1”) and
Accounting Principles Board Opinion 28-1, Interim Disclosures about Fair Value
of Financial Instruments (“APB 28-1”). FSP SFAS 107-1 and APB 28-1 require
disclosures about fair value of financial instruments whenever summarized
financial information for interim reporting periods is
presented.  Entities shall disclose the methods and significant
assumptions used to estimate the fair value of financial instruments and shall
describe changes in methods and significant assumptions, if any, during the
period.  FSP SFAS 107-1 and APB 28-1 are effective for interim
reporting periods ending after June 15, 2009.  The Company does not
expect the adoption of FSP SFAS 107-1 and APB 28-1 to have a material impact on
the Company’s financial statements.
 
 In April
2009, the FASB issued FSP SFAS 157-4, which provides additional guidance for
estimating fair value in accordance with SFAS No. 157, Fair Value Measurements
(“SFAS 157”), when the volume and level of market activity for the asset or
liability have significantly decreased.  FSP SFAS 157-4 emphasizes
that even if there has been a significant decrease in the volume and level of
market activity for the asset or liability and regardless of the valuation
techniques used, the objective of a fair value measurement remains the
same.  In addition, the statement provides guidance on identifying
circumstances that indicate a transaction is not orderly. FSP SFAS 157-4 is
effective for interim and annual periods ending after June 15,
2009.  The Company does not expect the implementation of FSP SFAS
157-4 to have a material impact on our 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.
 
 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.  Additional pro forma disclosures
required under SFAS No. 141 “Business Combinations”, related to this
acquisition, were not considered material.
  10
 Index
  Pro
forma Information for Material Acquisitions
 
 The results of MarCum, Innovative
Outdoors, and Castaic Softbait brand have been included in the condensed
consolidated financial statements since the date of the
acquisitions.  The following unaudited pro forma condensed results of
operations for the three months ended give effect to the acquisition of MarCum
as if such transaction had occurred on January 1, 2008.  The unaudited
pro forma information does not purport to represent what the Company's results
of operations would actually have been if such transaction in fact had occurred
at such date or to project the Company's results of future
operations.
 
 For the three months ended March 31,
2008:
 
 March31,
2008As reported
                      
                      Pro
formaNet
    sales
                      
                      $
                      2,367,065
                      
                      
                      $
                      2,611,354Loss from continuing
      operations
                      
                      
                      (636,855
                      )
                      
                      
                      (937,404
                      )Gain from discontinued
      operations
                      
                      
                      44,577
                      
                      
                      
                      44,577Net
    loss
                      
                      $
                      (592,278
                      )
                      
                      $
                      (892,827
                      )Loss per common
      share:Basic
                      
                      $
                      (0.26
                      )
                      
                      $
                      (0.39
                      )Diluted
                      
                      $
                      (0.26
                      )
                      
                      $
                      (0.39
                      )
 
 NOTE 3 - INVENTORIES
 
 Inventories consisted of the following
at:
 
 March 31,
                        2009
                      
                      
                      December 31,
                        2008Raw
      Materials
                      
                      $
                      1,664,504
                      
                      
                      $
                      2,200,836Finished
      Goods
                      
                      
                      2,402,545
                      
                      
                      
                      2,267,923Total
                      
                      
                      4,067,049
                      
                      
                      
                      4,468,759Less: Valuation
      Allowance
                      
                      
                      (115,000
                      )
                      
                      
                      (155,000
                      )Inventories,
      net
                      
                      $
                      3,952,049
                      
                      
                      $
                      4,313,759
 
 NOTE 4 - PROPERTY AND
EQUIPMENT
 
 Property and equipment consisted of the
following at:
 
 March31,
                  2009
                
                
                December 31,
                  2008Tooling
                
                $
                1,605,536
                
                
                $
                1,603,236Office furniture and
      equipment
                
                
                545,257
                
                
                
                560,257Warehouse
      equipment
                
                
                443,692
                
                
                
                437,952Vehicles
                
                
                7,418
                
                
                
                7,418Leasehold
      improvements
                
                
                359,729
                
                
                
                359,729Construction in
      progress
                
                
                109,089
                
                
                
                77,845Total
                
                
                3,070,721
                
                
                
                3,046,437Less: Accumulated
      depreciation
                
                
                (1,265,944
                )
                
                
                (1,144,787
                )Net
                
                $
                1,804,777
                
                
                $
                1,901,650
  11
 Index
  Depreciation expense of $124,298 and
$110,243 was recorded for the three months ended March 31, 2009 and 2008,
respectively.
 
 NOTE 5 - INTANGIBLES
 
 Scheduleof Intangible Assets at
March31:
 
 2009Gross Carrying
      Amount
                                                
                                                
                                                Impairment
                                                
                                                
                                                Accumulated
      Amortization
                                                
                                                
                                                Net Carrying Amount at March 31,
      2009Intangible
      assets subject to amortization:Trademarks
                                                
                                                $
                                                404,235
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                73,393
                                                
                                                
                                                $
                                                330,842Non-compete
                                                
                                                
                                                314,817
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                108,390
                                                
                                                
                                                
                                                206,427Customer
      lists
                                                
                                                
                                                40,000
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                11,722
                                                
                                                
                                                
                                                28,278Intellectual property and related
      patents
                                                
                                                
                                                406,505
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                75,074
                                                
                                                
                                                
                                                331,431Other
                                                
                                                
                                                24,684
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                2,740
                                                
                                                
                                                
                                                21,944Totals
                                                
                                                $
                                                1,190,241
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                271,319
                                                
                                                
                                                $
                                                918,922
 
 Schedule of Intangible Assets at
December 31:
  2008Gross Carrying
      Amount
                                              
                                              Impairment
                                              
                                              Accumulated
      Amortization
                                              
                                              Net Carrying Amount at December
      31, 2008Intangible
      assets subject to amortization:Trademarks
                                              
                                              $
                                              404,235
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              59,455
                                              
                                              
                                              $
                                              344,780Non-compete
                                              
                                              
                                              315,361
                                              
                                              
                                              
                                              544
                                              
                                              
                                              
                                              90,069
                                              
                                              
                                              
                                              224,748Customer
      lists
                                              
                                              
                                              438,667
                                              
                                              
                                              
                                              398,667
                                              
                                              
                                              
                                              9,389
                                              
                                              
                                              
                                              30,611Intellectual
      property and related patents
                                              
                                              
                                              678,916
                                              
                                              
                                              
                                              272,666
                                              
                                              
                                              
                                              64,826
                                              
                                              
                                              
                                              341,424Other
                                              
                                              
                                              24,684
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              817
                                              
                                              
                                              
                                              23,867Totals
                                              
                                              $
                                              1,861,863
                                              
                                              
                                              $
                                              671,877
                                              
                                              
                                              $
                                              224,556
                                              
                                              
                                              $
                                              965,430
 
 Amortization expense was $46,764 and
$58,621 for the three months ended March 31, 2009 and 2008,
respectively.
  12
 Index
  NOTE 6 – RELATED PARTY NOTE PAYABLE AND
WARRANTS
 
 Board of
Director Member Note Payable
 
 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 amortized over the life of the debenture using
the straight-line method.  Amortization expense on the original issue
discount was $0 and $20,841 for the three months ended March 31, 2009 and 2008,
respectively, and is included in interest expense.
 
 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 Company incurred approximately $37,000 of interest for the
three months ended March 31, 2009.  The entire principal and interest
is payable upon demand anytime after June 30, 2010.  In connection
with the new loan, the Company issued additional warrants to the Director to
purchase 100,000 shares of common stock at an exercise price of
$1.31.  The warrants are exercisable from July 8, 2008 to June 30,
2013.  The fair value of the warrants was calculated at $100,300 using
the Black Scholes model.  The following assumptions were used to
calculate the value of the warrants: (i) dividend yield of 0%, risk free
interest of 3.34%, expected life of 5 years, and volatility of
103%.  The resulting original issue discount, the fair value of the
warrants, will be amortized over the life of the debenture using the
straight-line method.  Amortization expense on the original issue
discount was $12,538 for the three months ended March 31, 2009 and is included
in interest expense.
 
 Chief
Executive OfficerNote
Payable
 
 On October 27, 2008, the Company
borrowed $700,000 from its Chief Executive Officer (CEO) in order to meet its
short-term cash flow requirements. This promissory note was unsecured and had an
interest rate of 15%. The entire principal and accrued interest was payable on
January 1, 2009.  The Company incurred approximately $17,000 of
interest for the months ended March 31, 2009.  In connection with the
loan, the Company issued warrants to the CEO to purchase 50,555 shares of common
stock at an exercise price of $.90. The warrants are exercisable from October
28, 2008 through October 27, 2010. The fair value of the warrants was calculated
at $31,071 using the Black Scholes model. The following assumptions were used to
calculate the value of the warrants: dividend yield of 0%, risk free interest of
1.49%, expected life to two years, and volatility of 140%. The resulting
original issue discount, the fair value of the warrants, was amortized over the
life of the debenture using the straight-line method.  Amortization
expense on the original issue discount was $31,071 and was included in interest
expense during the fourth quarter of fiscal 2008.  The Company paid
$250,000 of the note in January 2009.  The Company is currently in
default on the remaining $450,000 of the note and is in negotiations with its
CEO to extend the remaining principal balance of $450,000 in a new note that was
outstanding as of March 31, 2009.
 
 NOTE 7 - LINE OF CREDIT,
BANK
 
 On November 8, 2007, the Company entered
into a line of credit agreement, a demand note, with M&I Bank for up to a
maximum amount of $6,000,000.  Interest is payable monthly at the
greater of one month LIBOR plus 3.75% or a floor of 5.25% (5.25% at March 31,
2009).  The line of credit is collateralized by accounts receivable,
inventories, property and equipment, intangible assets and other assets of the
Company.  The facility is based on the following borrowing base
restrictions, 75% of eligible accounts receivable and 50% of eligible
inventories.In
connection with this agreement, the Company is required to payan 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 $1,911,823 at March 31, 2009 and $3,084,956 at December 31,
2008.  The terms of the credit agreement are written such that the
line willstay in place for
up to three years if the Company can satisfactorily perform within certain
covenants outlined by the bank.  The agreement required the Company to
be in compliance with the following affirmative covenants as ofMarch 31, 2009:  minimum net worth
(including subordinated debt) of $5,500,000 and minimum tangible net worth of
$2,200,000 and annual capital expenditures not to exceed
$500,000.   The Company did not meet the minimum net
worthcovenants as ofMarch 31, 2009, but has received a noncompliance
waiver from M&I Bankas
of March 31, 2009.The waiver does not entitle
the Company to any future waiver.
  13
 Index
  NOTE 8 - LONG-TERM
DEBT
 
 Long-term debt consisted of the
following at:
 
 March 31,
                      2009
                    
                    
                    December 31,
                      2008Unsecured Promissory Note – Cass
      Creek – monthly installments of approximately $11,000  from
      September 2008 through March 2010, then annual installments ranging from
      $108,000 to $124,000 beginning September 2010 through September 2012, all
      payments include interest at 8%, guaranteed by the CEO of the
      Company.
                    
                    $
                    457,927
                    
                    
                    $
                    493,932Unsecured Note Payable – Fish Hawk
      -  annual installments of $33,333 plus interest at 8% from July
      2008 through July 2010
                    
                    
                    66,667
                    
                    
                    
                    66,667Unsecured Note Payable – Castaic
      -  annual installments of $17,171, including interest at 8%,
      from January 2009 through January 2011
                    
                    
                    30,620
                    
                    
                    
                    44,250Unsecured Note Payable – Castaic
      -  monthly installments of $1,175, including interest at 8%,
      from February 2008 through January 2011
                    
                    
                    23,972
                    
                    
                    
                    26,978Unsecured Note Payable – monthly
      installments of $1,458, including interest at 7%, from August 2008 through
      July 2010
                    
                    
                    22,216
                    
                    
                    
                    24,850Unsecured Note Payable –
      Innovative Outdoors – monthly installments of $4,632, including interest
      at 7% from August 2008 through July 2011
                    
                    
                    119,326
                    
                    
                    
                    127,129Totals
                    
                    
                    720,728
                    
                    
                    
                    783,806Less: Current
      portion
                    
                    
                    273,846
                    
                    
                    
                    258,405Net Long-Term
      Debt
                    
                    $
                    446,882
                    
                    
                    $
                    525,401
 
 Future maturities of long-term debt for
years ending after March 31, 2009 are as follows:
 
 TotalYear ending March
      31:2010
              
              $
              273,8462011
              
              
              229,8352012
              
              
              117,4622013
              
              
              99,5852014 and
      forward
              
              
              -Total Long-Term
      Debt
              
              $
              720,728
  14
 Index
  NOTE 9- INCOME TAXES
 
 The provision for income taxes for
continuing operations consists of the following components for the three months ended
March31:
 
 2009
                  
                  2008Current
                  
                  $
                  -
                  
                  
                  $
                  -Deferred
                  
                  
                  -
                  
                  
                  
                  -Total Benefit fromIncome
      Taxes
                  
                  $
                  -
                  
                  
                  $
                  -
 
 A comparison of the provision for income
tax expense at the federal statutory rate of 34% for the three months
ended March31 to the
Company’s effective rate is as follows:
 
 2009
                          
                          
                          2008Federal statutory
      rate
                          
                          
                          (34.0
                          )
      %
                          
                          
                          (34.0
                          )
      %State tax, net of federal
      benefit
                          
                          
                          (3.3
                          )
                          
                          
                          (3.3
                          )Permanent differences and other
      including surtax exemption
                          
                          
                          0.1
                          
                          
                          
                          0.1Valuation
      allowance
                          
                          
                          37.2
                          
                          
                          
                          37.2Effective Tax
      Rate
                          
                          
                          -
                          %
                          
                          
                          -
                          %
 
 NOTE 10 - COMMITMENTS
AND CONTINGENCIES
 
 Lease Commitment
 
 The Company entered into a lease
agreement for its assembly and distribution facility and corporate headquarters
inBrainerd,Minnesota. The lease commenced on September 1,
2006 and expires on August 31, 2016.  The lease was amended in May
2008 for additional space, a sprinkler system improvement addition, and the term
extension through August 31, 2018.  The monthly base rent increases
from $16,900 to $24,400 over the revised term of the lease.  The
Company will record monthly rent expense equal to the total of the payments due
over the lease term, divided by the number of months of the lease term. The
difference between rent expense recorded and the amount paid will be credited or
charged to deferred rent. The Company is also required to pay its portion of
operating expenses.
 
 Future minimum lease payments are as
follows for the years endingMarch31:
 
 2010
                
                $
                214,2742011
                
                
                222,0162012
                
                
                230,9552013
                
                
                240,5702014
                
                
                250,185Thereafter
                
                
                1,221,254Total
                
                $
                2,379,254
  15
 Index
  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.  The Company has recognized approximately $69,000 of
expense relating to this agreement for the three months ended March 31, 2009,
which is included in research and development and engineering
expense.
 
 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.   The Company has recognized approximately $28,000 of
expense relating to this agreement for the three months ended March 31, 2009,
which is included in research and development and engineering
expense.
 
 The Company is under a technology
purchase agreement requiring payment of $50,000 by September 30,
2009.
 
 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 three months ended March
31:
 
 2009
                    
                    
                    2008Customer
      A
                    
                    $
                    
                    *
                    
                    $
                    407,879
 
 The
Company had receivable balances greater than 10% of its accounts receivable from
the following unaffiliated customers:
 
 March
      31, 2009
                    
                    
                    December
      31, 2008Customer
      A
                    
                    $
                    140,962
                    
                    
                    $
                    *Customer
      B
                    
                    
                    122,573
                    
                    
                    
                    *Customer
      C
                    
                    
                    119,773
                    
                    
                    
                    *Customer
      D
                    
                    
                    110,561
                    
                    
                    
                    *Customer
      E
                    
                    
                    *
                    
                    
                    
                    485,908Customer
      F
                    
                    
                    *
                    
                    
                    
                    309,721
 
 *Did not
represent more than 10% of the Company’s revenues or accounts receivable for the
period indicated.
 
 Foreign Inventory
 
 Included in the consolidated balance
sheets are international
inventoriesof
$385,899 at March 31,
2009and $351,690at December 31, 2008, respectively.  Foreign
inventories consist of raw material goods held in Asia andMexicoand used in the production ofthe Company’sproducts.
 
 Foreign Sales and Long-Lived
Assets
  16
 Index
  The following table presents net sales
by geographic area for the three months ended March 31:
 
 Geographic
      Data
                            
                            2009
                            
                            
                            2008Net SalesUnited
      States
                            
                            $
                            1,640,083
                            
                            
                            $
                            1,933,567International
                            
                            
                            238,979
                            
                            
                            
                            433,498Total net
      sales
                            
                            $
                            1,879,062
                            
                            
                            $
                            2,367,065
 
 The following table presentsproperty, plant, and
equipmentby geographic
areaas ofMarch 31, 2009 and December 31,
2008:
 
 Geographic
      Data
                            
                            March 31,
    2009
                            
                            
                            December 31,
      2008Property, plant, and
      equipmentUnited
    States
                            
                            $
                            837,383
                            
                            
                            $
                            1,023,517International
                            
                            
                            967,394
                            
                            
                            
                            878,133Totalproperty, plant, and
      equipment
                            
                            $
                            1,804,777
                            
                            
                            $
                            1,901,650
 
 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
receives 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 have been recorded when earned and collection is deemed
probable.  Based on the past history of collections, the Company
elected to record the deferred sale proceeds as earned rather than
collected.  The Company had $236,927 included in current assets
retained relating to discontinued operations as of December 31, 2008 relating to
the deferred sales proceeds.  In addition, there were $97,885
remaining of the deferred sale proceeds to be recorded at December 31,
2008.  In March 2009, the Company had a $215,206 receivable related to
the deferred sale proceeds that was to be paid to the Company over the next six
months.  The Company gave New Vad, LLC a $32,281 discount in exchange
for paying the receivable balance in March 2009.As of March 31, 2009 there
is no remaining deferred sale proceeds to be earned or
collected.
 
 The following are condensed statements
of the discontinued operations (Vaddio) for the three months ended March
31:
 
 2009
                    
                    
                    2008Sales,
      Net
                    
                    $
                    -
                    
                    
                    $
                    -Cost of goods
      sold
                    
                    
                    -
                    
                    
                    
                    -Gross
      profit
                    
                    
                    -
                    
                    
                    
                    -Selling, general, and
      administrative
                    
                    
                    -
                    
                    
                    
                    37,070Income (loss) from
      operations
                    
                    
                    -
                    
                    
                    
                    (37,070
                    )Other income
      (expense)
                    
                    
                    -
                    
                    
                    
                    -Gain on sale of
      building
                    
                    
                    -
                    
                    
                    
                    -Gain on sale of
      equipment
                    
                    
                    -
                    
                    
                    
                    -Gain on sale of Vaddio product
      line
                    
                    
                    59,332
                    
                    
                    
                    81,647Income and gain from discontinued
      operations before income taxes
                    
                    
                    59,332
                    
                    
                    
                    44,577Provision for income
      taxes
                    
                    
                    -
                    
                    
                    
                    -Gain from discontinued
      operations
                    
                    $
                    59,332
                    
                    
                    $
                    44,577
 
 17
 Index
  Assets and liabilities retained relating
to the discontinued operations (Vaddio) consisted of the following at March 31,
2009 and December 31, 2008.
 
 2009
                                
                                
                                2008Current assets retained relating
      to discontinued operations:Accounts
      receivable
                                
                                $
                                -
                                
                                
                                $
                                -Other
      Receivables
                                
                                
                                -
                                
                                
                                
                                236,927Inventory
                                
                                
                                -
                                
                                
                                
                                -Total
                                
                                $
                                -
                                
                                
                                $
                                236,927
 
 NOTE 13 - SUPPLEMENTAL CASH
FLOWS
 2009
                                                                                      
                                                                                      
                                                                                      2008Supplemental Cash Flow
      DisclosuresCash paid for
      interest
                                                                                      
                                                                                      $
                                                                                      134,286
                                                                                      
                                                                                      
                                                                                      $
                                                                                      112,896Cash paid for income
      taxes
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      -Supplemental 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
  18
 Index
  Item2: Management’s Discussion and Analysis of Financial Condition
and Results of Operations
 
 Forward
Looking Statements
 
 Some of the statements made in this Form
10-Q constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are subject to the
safe harbor provisions of the reform act. Forward-looking statements may be
identified by the use of the terminology such as may, will, expect, anticipate,
intend, believe, estimate, should or continue or the negatives of these terms or
other variations on these words or comparable terminology. To the extent that
this report contains forward-looking statements regarding the financial
condition, operating results, business prospects or any other aspect of our
business, you should be aware that our actual financial condition, operating
results and business performance may differ materially from that projected or
estimated by us in the forward-looking statements. We have attempted to
identify, in context, some of the factors that we currently believe may cause
actual future experience and results to differ from their current expectations.
These differences may be caused by a variety of factors including, but not
limited to, adverse economic conditions, intense competition, including entry of
new competitors, inability to obtain sufficient financing to support our
operations, progress in research and development activities, variations in
costs, fluctuations in foreign currencies against the U.S. dollar in countries
where we source products, adverse federal, state and local government
regulation, unexpected costs, lower sales and net income (or higher net losses,
than forecasted), price increases for equipment, inability to raise prices,
failure to obtain new customers, the possible fluctuation and volatility of our
operating results and financial condition, inability to carry out marketing and
sales plans, loss of key executives and other specific risks that may be alluded
to in this report.
 
 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, which have been prepared
assuming that we will continue as a going concern, and in conjunction with our
Annual Report on Form 10-K for the year ended December 31, 2008.  As
discussed in Note 1 to the condensed consolidated financial statements, our
recurring net losses and inability to generate sufficient cash flows to meet our
obligations and sustain our operations raise substantial doubt about our ability
to continue as a going concern.  Management’s plans concerning these
matters are also discussed in Note 1 to the condensed consolidated financialstatements.  Thisdiscussion 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.
 
 Overview
 
 Nature Vision, Inc., (f/k/a Photo
Control Corporation) (the “Company” or “we”) was incorporated as aMinnesotacorporation 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.)
aMinnesotacorporation 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.”
 
 Nature Vision designs, manufactures and
markets outdoor recreation products primarily for the sport fishing and hunting
markets. We have also adapted our outdoor recreation products and core
technologies for sale into certain industrial markets.
 
 Despite
cost reduction initiatives, the Company will be unable to pay its obligations in
the normal course of business or service its debt in a timely manner throughout
2009 without raising additional debt or equity capital.
 
 The
Company is currently evaluating strategic alternatives that include the
following: (i) raising of capital, or (ii) the sale of the Company to another
entity.  This process is ongoing and can be lengthy and has inherent
costs.  There can be no assurance that the exploration of strategic
alternatives will result in any specific action to alleviate the Company’s 12
month working capital needs or result in any other transaction.
 
 Seasonality
 
 The
Company’s business is seasonal in nature.  Quarterly sales are
typically lowest in the second and third quarters of the fiscal year as the
Company ramps up purchasing and production for its primary selling season for
outdoor recreation products in the fourth quarter.
  19
 Index
  Results of
Operations
 
 Our
primary products are categorized into six product lines. The following table
sets forth, for the periods indicated, net sales by product line along with the
change from the previous year:
 
 For
      the Three Months Ended March 31:2009
                                
                                
                                2008Net
      Sales
                                
                                
                                Percent
                                
                                
                                Net
      SalesUnderwater Viewing systems and
      Sonars
                                
                                $
                                922,000
                                
                                
                                
                                (33.0
                                %)
                                
                                $
                                1,376,000Fishing Trolling
      systems
                                
                                
                                73,000
                                
                                
                                
                                73.8
                                %
                                
                                
                                42,000Hunting
                                
                                
                                393,000
                                
                                
                                
                                (38.7
                                %)
                                
                                
                                641,000Ice
      Fishing
                                
                                
                                39,000
                                
                                
                                
                                (11.4
                                %)
                                
                                
                                44,000Fishing
      Lures
                                
                                
                                169,000
                                
                                
                                
                                267.4
                                %
                                
                                
                                46,000Industrial
                                
                                
                                110,000
                                
                                
                                
                                (23.1
                                %)
                                
                                
                                143,000Other (including freight and
      service)
                                
                                
                                173,000
                                
                                
                                
                                130.7
                                %
                                
                                
                                75,000Total Net
      Sales
                                
                                $
                                1,879,000
                                
                                
                                
                                (20.6
                                %)
                                
                                $
                                2,367,000
 
 The
following table contains selected information from our historical consolidated
statement of operations, expressed as a percentage of net sales for the three
months ended March 31:
 
 2009
                            
                            
                            2008Net
    Sales
                            
                            
                            100.0
                            %
                            
                            
                            100.0
                            %Cost of goods
      sold
                            
                            
                            87.0
                            
                            
                            
                            72.6Gross
      margin
                            
                            
                            13.0
                            
                            
                            
                            27.4Sales and marketing
      expenses
                            
                            
                            21.6
                            
                            
                            
                            22.0Research & development and
      engineering expenses
                            
                            
                            10.7
                            
                            
                            
                            5.4General and administrative
      expenses
                            
                            
                            21.5
                            
                            
                            
                            19.8Total operating
      expenses
                            
                            
                            53.8
                            
                            
                            
                            47.2Operating
      loss
                            
                            
                            (40.8
                            )
                            
                            
                            (19.8
                            )Provision for income
      taxes
                            
                            
                            -
                            
                            
                            
                            -Other
      expense
                            
                            
                            (7.1
                            )
                            
                            
                            (7.1
                            )Gain from discontinuedoperations
                            
                            
                            3.2
                            
                            
                            
                            1.9Net
    loss
                            
                            
                            (44.7
                            %)
                            
                            
                            (25.0
                            %)
 
 Sales, Net
 
 Netsalesdecreased20.6% to $1,879,000 for the three months
ended March 31, 2009 compared to $2,367,000 for the prior year three months
ended.Net sales mainly decreased from
the weak
economic conditions and declines in consumer spending.
 
 The underwater viewing system and sonar
product net sales for the three months ended March 31, 2009 decreased $454,000
compared to the prior year three months ended.  The decrease was
mainly due to general economic conditions, declines in consumer spending, and
increased competition.
 
 The hunting product net sales decreased
due to the following:  (i) lower Cass Creek game call sales and (ii)
decreases in revenues generated from hunting blinds due to proliferation of
competitors that has turned the product line into a
commodity.
  20
 Index
  Gross Profit
 
 Gross
profit of $245,000 was 13.0% of net sales for the three months ended March 31,
2009 compared to $649,000 or 27.4% of net sales for the prior year three months
ended.
 
 The
following were the primary reasons for the decline in the gross margin as
compared to the prior year:
 
 ·
              The
      lower net sales in 2009 as compared to 2008 resulted in fixed costs being
      higher as a percentage of net
sales.
 ·
              The
      lower net sales in the Hunting and Industrial product lines which
      generally carry higher gross
margins.
 ·
              The
      lower selling price on certain later life cycle
  products.
 
 Operating
Expenses
 
 Total
operating expenses were $1,011,000 for the three months ended March 31, 2009
compared to $1,117,000 for the prior year three months ended, a decrease of
$106,000.  The decrease was primarily the result of lower marketing
and advertising expenses of approximately $100,000 and declines in accounting,
legal fees, and other general and administrative expenses of approximately
$65,000.  These operating expense reductions were partially offset by
approximately $100,000 in expenses related to research and development
commitments that the Company entered into in May 2008.
 
 Other
Income and Expenses
 
 Other
expense decreased by approximately $34,000 for the three months ended March 31,
2009 as compared to the prior year three months ended. The decrease is related
to lower interest expense primarily due to the Company not carrying debt for the
three months ended March 31, 2009 related to the building that was sold in April
2008 and the lower interest rate on the line of credit.
 
 Loss
from Continuing Operations
 
 The
Company recognized a pretax loss of $900,000 for the three months ended March
31, 2009, compared to a pretax loss of $637,000 for the three months ended March
31, 2008.  The increase in the pretax loss is as a result of the
fluctuations discussed above.
 
 Gain
from Discontinued Operations
 
 In connection with the Company’s sale of
the Vaddio product line that closed in February, 2007, the Company would receive
2% of receipts from the gross sale of all Vaddio products sold by the New Vad,
LLC until a total payment of $750,000 was received.   The Company
recognized approximately $60,000 and $82,000 during the three months ended March
31, 2009 and 2008, respectively.  The Company has received all
deferred sale proceeds related to the Vaddio sale as of March 31,
2009.
 
 Net
Loss
 
 The
Company recognized a net loss of approximately $841,000 for the three months
ended March 31, 2009 compared to a net loss of $592,000 for the three months
ended March 31, 2008.
 
 Liquidity and Capital
Resources
 
 The
Company’s cash flow from operating, investing and financing activities, as
reflected in the consolidated statements of cash flows, is summarized in the
following table for the three months ended March 31:
 
 (thousands)
                      
                      2009
                      
                      
                      2008Cash provided by (used
      for):Operating
      activities
                      
                      $
                      1,299
                      
                      
                      $
                      1,814Investing
      activities
                      
                      
                      256
                      
                      
                      
                      (122
                      )Financing
      activities
                      
                      
                      (1,509
                      )
                      
                      
                      (1,823
                      )Increase (decrease) in cash and
      cash equivalents
                      
                      $
                      46
                      
                      
                      $
                      (131
                      )
  21
 Index
  Operating
Activities
 
 Cash
flows from operations totaled $1,299,000 and $1,814,000 for the three months
ended March 31, 2009 and 2008, respectively. The primary reasons for the decline
in cash flow from operations was the increase in the net loss of $248,000
recorded in 2009 and the unfavorable net changes in operating assets and
liabilities of $312,000 as compared to the prior year three months
ended.
 
 Investing
Activities
 
 Cash
flows provided from (used in) investing activities totaled $256,000 and
($122,000) for the three months ended March 31, 2009 and 2008,
respectively.   The proceeds related to the sale of Vaddio
generated approximately $296,000 for the three months ended March 31,
2009.  The Company
incurred capital expenditures and intangible expenditures totaling $40,000 for
the three months ended March 31, 2009.
 
 Financing
Activities
 
 Cash
flows provided by (used for) financing activities totaled ($1,509,000) and
($1,823,000) for the three months ended March 31, 2009 and 2008,
respectively.  Payments on long-term debt were $63,000 for the three
months ended March 31, 2009. Payments on the note payable – related party were
$250,000 for the three months ended March 31, 2009.
 
 On November 8, 2007, the Company entered
into a line of credit agreement, a demand note, with M&I Bank for up to a
maximum amount of $6,000,000.  Interest is payable monthly at the
greater of one month LIBOR plus 3.75% or 5.25% (5.25% at March 31,
2009).  The line of credit is collateralized by accounts receivable,
inventories, property and equipment, and other assets of the
Company.  The facility is based on the following borrowing base
restrictions, 75% of eligible accounts receivable and 50% of eligible
inventories.In connection
with this agreement, the Company is required to payan 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 $1,911,823 and $3,084,956 at March 31, 2009 and December 31,
2008, respectively.  The terms of the credit agreement are written
such that the line will stay in place for up to three years if the Company can
satisfactorily perform within certain covenants outlined by the bank.  The agreement required the
Company to be in compliance with the following affirmative covenants as ofMarch 31, 2009:  minimum net worth
(including subordinated debt) of $5,500,000 and minimum tangible net worth of
$2,200,000 and annual capital expenditures not to exceed
$500,000.   The Company did not meet the minimum net
worthcovenants as ofMarch 31, 2009, but has received a noncompliance
waiver from M&I Bank as ofMarch 31, 2009.The waiver does not entitle the Company
to any future waiver.
 
 In October 2008, the Company borrowed
$700,000 from its Chief Executive Officer (CEO) in order to meet its short-term
cash flow requirements. This promissory note was unsecured and had an interest
rate of 15%. The entire principal and accrued interest was payable on January 1,
2009, of which the Company paid $250,000 in January 2009.  In
connection with the loan, the Company issued warrants to the Chief Executive
Officer to purchase 50,555 shares of common stock at an exercise price of $.90.
The warrants are exercisable from October 28, 2008 through October 27,
2010.  The
Company is currently in default on the remaining $450,000 of the note and is in
negotiations to extend the remaining $450,000 of the CEO’s
note.
 
 In July
2008, the Company amended the terms and replaced the original $1,000,000 demand
note issued to the member of its Board of Directors in October
2007.  The amended $1,000,000 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%.  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.
 
 In May 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.  The Company has recognized approximately $69,000 of expense
relating to this agreement for the three months ended March 31, 2009, which is
included in research and development and engineering
expense.
 
 In May 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.  The Company has recognized approximately $28,000 of expense
relating to this agreement for the three months ended March 31, 2009, which is
included in research and development and engineering
expense.
  22
 Index
  The Company entered into a lease
agreement for its assembly and distribution facility and corporate headquarters
inBrainerd,Minnesota. The lease commenced on September 1,
2006 and expires on August 31, 2016.  The lease was amended in May
2008 for additional space, a sprinkler system improvement addition, and the term
extension through August 31, 2018.  The monthly base rent increases
from $16,900 to $24,400 over the revised term of the lease.
 
 The
Company is under a technology purchase agreement requiring payment of $50,000 by
September 30, 2009.
 
 The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern, which contemplates the realization
of assets and the liquidation of liabilities in the normal course of
business.  We incurred net losses of $841,000 and $592,000,
respectively, for the three months ended March 31, 2009 and 2008 and had an
accumulated deficit of $5.5 million as of March 31, 2009.  We have
managed our liquidity during the first quarter of 2009 through cost reduction
initiatives and the proceeds from a related party note payable.  The
Company is currently in default of the remaining $450,000 of the note and is in
negotiations to extend the remaining $450,000 of the CEO’s note.
 
 The
Company has historically been a seasonal business with the majority of the
Company’s revenue being realized in the fourth quarter.  The general
economic conditions, including a lowering of overall consumer confidence as
consumers continue to pull back discretionary spending, our historical high
working capital  usage in first nine months of the fiscal year,
competition in certain product lines, and the higher than anticipated 2008 and
2007 acquisitions transition costs have impacted our operating
results.  In addition to the factors described above, the global
credit market crisis has impacted our ability to find subordinated debt or other
additional financing.  We have not seen an improvement in the general
economic conditions that impact our Company through April 2009.
 
 Despite
cost reduction initiatives, the Company will be unable to pay its obligations in
the normal course of business or service its debt in a timely manner throughout
2009 without raising additional debt or equity capital.
 
 The
Company is currently evaluating strategic alternatives that include the
following: (i) raising of capital, or (ii) the sale of the Company to another
entity.  This process is ongoing and may be lengthy and has inherent
costs.  There can be no assurance that the exploration of strategic
alternatives will result in any specific action to alleviate the Company’s 12
month working capital needs or result in any other transaction.
  The Company believes that the effect of
inflation has not been
material during the three months ended March 31, 2009.
 
 Off-Balance Sheet Financing
Arrangements
 
 As of March 31, 2009, there were no off-balance sheet
arrangements, unconsolidated subsidiaries and commitments or guaranties of other
parties.
 
 CriticalAccounting Policies
 
 The
Company’s critical accounting policies are identified in the Company’s Annual
Report on Form 10-K for the fiscal year ending December 31, 2008 in Management’s Discussion and Analysis
of Financial Condition and Results of Operations under the heading
“Critical Accounting Policies.” There were no significant changes to the
Company’s critical accounting policies during the three months ended March 31,
2009.
 
 Item
3: Quantitative and Qualitative Disclosures About Market
Risk.
 
 There
have been no significant changes in our exposure to market risk since December
31, 2008.  Refer to Item 7A in our 2008 Form 10-K.
 
 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,
Robert P. King, of the effectiveness of Nature Vision’s disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)
as of the end of the period covered by this report.Based upon this review,
Messrs.Zernov and King concluded that our
disclosure controls and procedures are effective.
  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-15(f) under the Exchange
Act).Our management assessed the
effectiveness of our internal control over financial reporting as of March 31,
2009.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
March 31, 2009, 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, is 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 1A.  Risk
Factors
 
 Factors that may affect our future
results include, but are not limited to, the following items as well as the information in Item
2- Management’s Discussion
and Analysis of Financial Condition and Results of Operations.If any of the events or
circumstances described in the following risks actually occurs, our business,
financial condition or results of operations could be materially adversely
affected. In such cases, the trading price of our common stock could
decline.
 
 There
is substantial doubt about our ability to continue as a going concern.The condensedconsolidated financial
statements were prepared assuming we will continue as a going concern and
further states that our recurring losses from operations, accumulated deficit
andinability to generate sufficient cash flow to meet our obligations and sustain
our operations raise substantial doubt about our ability to continue as a going
concern. Our plans concerning these mattersare discussed in Note1to the accompanying
condensed consolidated financial statements. Our future is dependent on our
ability to
raise capital or sell the Company.If we fail to do so for
any reason, we would not be able to continue as a going concern and could
potentially be forced to seek relief through a filing under the U.S. Bankruptcy
Code.
 
 We May Not Be
Able to Maintain our Listing on the Nasdaq Global Market if we are Unable to
Satisfy the Minimum Bid Price Requirements.On September 25, 2008,
Nature Vision, Inc. (the “Company”) received a notice from The Nasdaq Stock
Market indicating that the Company is in violation of the minimum bid price
requirement for continued listing set forth in Nasdaq Marketplace Rule
4310(c)(4) as the bid price of the Company’s common stock closed below $1.00 per
share for 30 consecutive days.  The notice from Nasdaq further stated
that the Company will have 180 calendar days, or until March 24, 2009, to regain
compliance with Rule 4310(c)(4) by demonstrating a closing bid price of $1.00 or
more for at least ten consecutive business days. On December 19, 2008 Nasdaq
informed the Company had until September 27, 2009 to regain compliance with
minimum bid price for continued listing set forth in Rule
4310(c)(4).   If the Company cannot demonstrate compliance with
Rule 4310(c)(4) by September 27, 2009, subject to certain limited exceptions,
the Company’s common stock will be delisted from The Nasdaq Capital Markets and
thereafter would be quoted on the Over-the-Counter Bulletin Board.
 
 We
may be unable to return to profitability or raise additional
capital.We
incurred net losses of $841,000 and $592,000, respectively, for the three months
ended March 31, 2009 and 2008 and had an accumulated deficit of $5.5 million as
of March 31, 2009. The Company is currently evaluating strategic alternatives
that include the following: (i) raising of capital (ii) the sale of the Company
to another entity.  This process is ongoing and can be lengthy and has
inherent costs.  There can be no assurance that the exploration of
strategic alternatives will result in any specific action to alleviate the
Company’s 12 month working capital needs or result in any other
transaction.We may not be able to
obtain additional debt or equity financing or, if we do, it may not be on
favorable terms. Sources of additional capitalmay include additional
bank debt financing or the sale of debt or equity securities, the latter of
which could result in significant dilution to existing
shareholders.
  24
 Index
  Failure to Comply
with Requirements and Restrictive Covenants in Our Credit Facility Could Have a
Material Adverse Affect on Our Business.   Our credit
facility contains restrictive covenants and requirements that we comply with
certain financial covenants. The credit facility requires, among other things,
that we be in compliance with the
following affirmative covenants as ofMarch 31, 2009:  minimum net worth
(including subordinated debt) of $5,500,000 and minimum tangible net worth of
$2,200,000 and annual capital expenditures not to exceed
$500,000.  The Company did not meet the minimum net worthcovenants as ofMarch 31, 2009, but has received a noncompliance
waiver from M&I Bank as ofMarch 31, 2009.  The waiver does not entitle
the Company to any future waiver.If our lender fails to
agree to such future concessions, the lender would be under no obligation to
advance additional funds to us, which would have an immediate, material adverse
effect on us. In
addition, failure to maintain the required covenants could result in
acceleration of our indebtedness under the credit facility. If we are not able
to maintain our borrowing availability under our credit facility and/or raise
additional capital when needed, we may be forced to sharply curtail our efforts
to manufacture and promote the sale of our products or a material effect on
Company’s ability to continue operations.
 
 We
depend on patents and proprietary technology.Ourcurrent sales levels may dependon our ability to defend
current patents and obtain patent protection for future products and processes.
We currently havenumerousUnited Statespatents. In addition, we have applied
for patent protection on additional aspects of our current products. These
patent applications may not be granted. Even if they are, the scope of any
patent protection may be limited, allowing for competitive products or the
patents may be held invalid if challenged. We also rely upon trade secrets, and
no assurance can be given that others will not independently develop or
otherwise acquire substantially equivalent know-how or otherwise gain access to
our proprietary technology.
 
 Trademark
infringement or other intellectual property claims relating to our products
could increase our costs.Our industry is
susceptible to litigation regarding trademark and patent infringement and other
intellectual property rights. We could be either a plaintiff or defendant in
trademark and patent infringement claims and claims of breach of license from
time to time. The prosecution or defense of intellectual property litigation is
both costly and disruptive of the time and resources of our management even if
the claim or defense against us is without merit. We could also be required to
pay substantial damages or settlement costs to resolve intellectual property
litigation.
 
 We
depend on our key personnel.Our future success depends to a
significant degree upon the continued services of key technical and senior
management personnel including, but not limited to, Jeffrey P. Zernov, our Chief
Executive Officer and President, as well as our ability to attract, retain and
motivate highly qualified managerial and technical personnel if we expand.
Failure to attract and retain skilled personnel could hinder our research and
development and manufacturing efforts, and could limit our ability to expand our
product offering or to manage growth. The loss of one or more key employees
could similarly affect us.
 
 The
future growth of Nature Vision will depend upon our ability to continue to
develop new and innovative products and enter new markets.A significant portion of our outdoor
recreation products division’s current revenue has been historically dependent
upon sales to traditional sporting goods dealers. In addition to current
products, we intend to introduce new products for other applications in the
outdoor recreation market. Because some of these new product categories may be
new to us, we may need to develop relationships with major participants in this
market, which in many cases are different from our existing customers. Any new
products may not be accepted by the ultimate users. Even if they are, we may
need to continue to develop relationships with significant retailers to
penetrate markets and compete against suppliers of similar
products.
 
 We
use Asian-based sources of supply formajorityour products.We currently
purchase, and will continue to purchase, finished goods, components and raw
materials from Asian-based vendors for our outdoor recreation products. Although
we have identified alternative finished goods manufacturers and suppliers for
key components, sub-assemblies and raw materials, at the present time we useseveralAsian suppliers. Should a key supplier
be unwilling or unable to supply components or sub-assemblies in a timely manner
or subject to specifications, or should approval of a current or proposed
supplier be delayed, withheld or withdrawn, we could experience delays in
obtaining alternative suppliers, which might result in reduced product output.
In addition, the price that we pay for these products could increase due to
trade barriers, tariffs or other trade restrictions imposed by theUnited Statesor changes in international currency
rates.
  25
 Index
  Quality
control fromoutsourced production.We are reliant on our suppliers to
produce quality products.  The inability of our suppliers to meet
quality control standards could affect the Company’s costs associated with
returns and defective merchandise.  Our independent offshore quality
control consultant performs routine inspections on Company shipments and
inspects production lines on a daily basis.  The Company performs
further quality inspections at our facility and documents engineering
standards.  There is no assurance that these quality control processes
will eliminate defective products in the future.
 
 Sources of and
fluctuations in market prices of raw materials can affect our operating results.The primary raw materials we use are metals, resins and packaging
materials. These materials are generally available from a number of suppliers,
but we have chosen to concentrate our sourcing with a limited number of vendors
for each commodity or purchased component. We believe our sources of raw
materials are reliable and adequate for our needs. However, the development of
future sourcing issues related to the availability of these materials as well as
significant fluctuations in the market prices of these materials may have an
adverse affect on our financial results.
 
 Government
regulation banning or restricting the use of underwater video cameras would hurt
our business.The use of
the Aqua-Vu underwater viewing system is not regulated by any federal or state
governmental entity, nor is management aware of any similar restrictions inCanadaor other foreign countries. In 1998, at
the time the product was introduced, the Minnesota Senate passed a bill that
would have outlawed the use of underwater video cameras for sport fishing. The
Minnesota House of Representatives did not act upon the bill, and it was never
enacted. If a federal, state or foreign governmental entity were to enact
legislation banning or restricting the use of underwater video cameras, sales of
the Aqua-Vu underwater viewing system would decline and our business would
suffer as a result of fewer sales of our flagship product.
 
 Potential
competitors could lower our revenues or cause expenses to increase.Our current competition for the Aqua-Vu
underwater viewing system and other products consists of several
companies, including large
retailer’s directly sourcing products under their own labels.Potential competitors include large
consumer and marine electronics companies with broader product lines and better
name recognition and market acceptance. These companies also have significantly
greater financial, technical, marketing and other resources. Increased
competition, especially by these larger, more established potential competitors,
may result in increased pricing pressure resulting in reduced gross profit
margins. We may also be forced to increase spending on marketing, sales and
product development, which would further reduce profits.
 
 Sales of our
products are seasonal, which causes our operating results to vary from quarter
to quarter.Sales of our products
are seasonal. Historically, our net sales will peak in the fourth quarter due to
the buying patterns of our customers. Seasonal variations in operating results
may cause our results to fluctuate significantly in the first, second and third
quarters.
 
 General economic
conditions affect our results.Our revenues are affected by
economic conditions and consumer confidence worldwide, but especially in the
United States.  In times of economic uncertainty, consumers tend to
defer expenditures for discretionary items, which affect demand for our
products.  Our businesses are cyclical in nature, and their success is
dependent upon favorable economic conditions, the overall level of consumer
confidence and discretionary income levels.  Any substantial
deterioration in general economic conditions that diminish consumer confidence
or discretionary income can reduce our sales and adversely affect our financial
results including the potential for future impairments of intangible
assets.  The impact of weakening consumer credit markets; corporate
restructurings; layoffs; declines in the value of investments and residential
real estate; higher fuel prices and increases in federal and state taxation all
can negatively affect our results.
 
 Impairment
charges could reduce our profitability.In accordance with the
provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets, the Company tests goodwill and other intangible assets with
indefinite useful lives for impairment on an annual basis or on an interim basis
if an event occurs that might reduce the fair value of the reporting unit below
its carrying value.  We conduct testing for impairment during the
fourth quarter of our fiscal year.  Various uncertainties, including
changes in consumer preferences, deterioration in the political environment,
continued adverse conditions in the capital markets or changes in general
economic conditions, could impact the expected cash flows to be generated by an
intangible asset or group of intangible assets, and may result in an impairment
of those assets.  Although any such impairment charge would be a
non-cash expense, any impairment of our intangible assets could materially
increase our expenses and reduce our profitability.   We had an
independent appraisal firm complete an appraisal of goodwill and other
intangibles as of November 30, 2008.  For our fiscal year ending
December 31, 2008, we recorded an impairment charge of $1,338,250.  As
a result of the appraisal findings the Company wrote off its entire goodwill of
$666,373 and wrote off $671,877 of other intangible
assets.   There was no impairment charge recorded for the three
months ended March 31, 2009.  There is no assurance that the remaining
intangibles will not be impaired in future years.
  26
 Index
  We
may experience difficulties integrating the operations of newly acquired
business or product lines.Newly acquired business operations
require management to integrate each operation including marketing, pricing,
returns, sourcing, and accounting.  These acquisitions if not
effectively integrated or if we have difficulties in achieving cost savings and
synergies can result in lower revenues and profitability.
 
 The trading price
of shares of our common stock fluctuates and investors in our common stock may
experience substantial losses.The trading price of our
common stock could decline or fluctuate in response to a variety of factors,
including:
 
 ·
              the timing of Company
      announcements or those of our competitors concerning significant product
      developments, acquisitions or financial
  performance;
 ·
              fluctuation in our quarterly
      operating results;
 ·
              substantial common stock
      sales;
 ·
              general stock market conditions;
      or
 ·
              other
      economic or external factors.
 
 A limited number
of our shareholders can exert significant influence over the
Company.As
of December 31, 2008, Jeffery P. Zernov, CEO, Richard P. Kiphart, Chairman with
other Board of Directors and Capra family (large shareholder) who is supportive
of management holds approximately 53% of the voting power of our common stock
taken as a whole. This voting power would permit these shareholders, if they
chose to act together, to exert significant influence over the outcome of
shareholder votes, including votes concerning the election of directors, by-law
amendments, possible mergers, corporate control contests and other significant
corporate transactions.
 
 Our
shares of common stock are thinly traded and our stock price may be more
volatile.
 
 Because
our common stock is thinly traded, its market price may fluctuate significantly
more than the stock market in general or the stock prices of similar companies,
which are exchanged, listed or quoted on NASDAQ. We believe there are 1,381,578
shares of our common stock held by nonaffiliates as of April 28, 2009. Thus, our
common stock will be less liquid than the stock of companies with broader public
ownership, and as a result, the trading prices for our shares of common stock
may be more volatile. Among other things, trading of a relatively small volume
of our common stock may have a greater impact on the trading price for our stock
than would be the case if our public float were larger.
 
 Critical
Accounting Policies and Estimates
 
 The
Company’s management discussion and analysis of its financial condition and
results of operations are based upon the Company’s consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the U.S. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of its assets, liabilities, sales and expenses, and related footnote
disclosures. On an on-going basis, the Company evaluates its estimates for
product returns, bad debts, inventories, intangible assets, income taxes,
warranty obligations, pensions and other post-retirement benefits, and
litigation. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
 
 The
Company believes critical accounting policies (See Item
2:  Management’s Discussion and Analysis of Financial Condition and
Results of Operations for a listing of critical accounting policies) affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements. Management has discussed these policies with
the Audit Committee of the Company’s Board of Directors.
 
 Item 2.  Unregistered Sales
of Equity Securities and Use of Proceeds.  Not
applicable.
 
 Item 3.  Defaults Upon
Senior Securities.  Not applicable.
 
 Item 4.  Submission of
Matters to a Vote of Security Holders.  Not
applicable.
 
 Item 5.  Other
Information.  Not applicable.
  27
 Index
  Item6.   Exhibits.
 
 Listing
of Exhibits:
 
 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.
  28
 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:  May
      13, 2009
                  By:
                  /s/ Jeffrey P. ZernovIts:  Chief
      Executive Officer and PresidentDate:  May
      13, 2009
                  By:
                  /s/ Robert P. KingIts:  Chief
      Financial Officer
   29