UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C.  20549
 ____________________________
 
 FORM
10-Q
 
 x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
 THE
SECURITIES EXCHANGE ACT OF 1934
 
 For
the quarterly period ended June 30, 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
 ____________________________
 
 SWORDFISH
FINANCIAL, 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.)
 
 142
Wembley Way
 
 Rockwall,
Texas   75032
 (Address
of principal executive offices)
 
 (972)
310-1830
 (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.
 
 þ YesoNo
 
 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 a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large
      accelerated filero
              Accelerated
      filero
              Non-accelerated
      filero
              Smaller
      reporting companyþ
 
 Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
 
 o Yesþ  No
 
 The
number of shares of issuer’s common stock, par value $0.16 per share,
outstanding as of December 16, 2009, was 13,300,000.  The registrant
has no other classes of securities outstanding.
  
 Index
  SWORDFISH FINANCIAL, INC.
 
 INDEX
 
 PART
      I
              
              
              
              FINANCIAL
      INFORMATION
              
              Page
      NumberItem 1:
              
              Condensed Financial
      StatementsCondensed Consolidated Balance
      Sheets – June 30, 2009 (Unaudited)  and December 31,
      2008
              
              1Condensed
      Consolidated Statements of Operations - Three Months and Six Months Ended
      June 30, 2009 and2008
      (Unaudited)
              
              2Condensed
      Consolidated Statements of Cash Flows - Six Months Ended June 30, 2009
      and2008
      (Unaudited)
              
              3Notes to Condensed Consolidated
      Financial Statements
              
              4Item
      2:
              
              Management's Discussion and Analysis
      of Financial Condition and Results of
Operations
              
              20Item
      3:
              
              Quantitative and Qualitative
      Disclosures About Market Risk
              
              26Item4T:
              
              Controls and
      Procedures
              
              26PART
      II
              
              
              
              OTHER
      INFORMATIONItem 1:
              
              Legal
      Proceedings
              
              26Item1A:
              
              Risk
    Factors
              
              26Item
      2:
              
              Unregistered Sales of Equity
      Securities and Use of Proceeds
              
              26Item
      3:
              
              Default Upon Senior
      Securities
              
              26Item
      4:
              
              Submission of Matters to Vote of
      Security Holderso
              
              26Item
      5:
              
              Other
      Information
              
              26Item 6:
              
              Exhibits
              
              27Signatures
              
              27
  Index
  Part
I – FINANCIAL INFORMATION
 
 Item1: Financial Statements
 SwordfishFinancial, Inc. and Subsidiaries
 Condensed
Consolidated Balance Sheets
 June
30, 2009 and December 31, 2008
 
 UnauditedJune 30,2009
              
              
              December
      31,2008ASSETSCURRENT
      ASSETSCash
      and Cash Equivalents
              
              $
              67,034
              
              
              $
              -Accounts
      Receivable, net
              
              
              989,911
              
              
              
              2,962,869Other
      Receivables
              
              
              23,406
              
              
              
              4,260Inventories,
      net
              
              
              1,604,251
              
              
              
              4,313,759Current
      Portion of Prepaid Expenses
              
              
              123,675
              
              
              
              221,443Current
      Assets Retained Relating to Discontinued Operations
              
              
              0
              
              
              
              236,927Total
      Current Assets
              
              
              2,808,277
              
              
              
              7,739,258PROPERTY
      AND EQUIPMENT, NET
              
              
              112,693
              
              
              
              1,901,650NON-CURRENT
      ASSETSPrepaid
      Expenses, net of Current Portion
              
              
              24,899
              
              
              
              32,422Intangibles
      – net
              
              
              0
              
              
              
              965,430Total
      Non-Current Assets
              
              
              24,899
              
              
              
              997,852TOTAL
      ASSETS
              
              $
              2,945,869
              
              
              $
              10,638,760LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIESChecks
      Issued in Excess of Cash in Bank
              
              $
              66,360
              
              
              $
              22,236Current
      Portion of Long-Term Debt
              
              
              235,952
              
              
              
              258,405Note
      Payable – Related Party
              
              
              450,000
              
              
              
              700,000Current
      Portion of Deferred Retirement Benefits
              
              
              58,965
              
              
              
              60,438Line
      of Credit, Bank
              
              
              1,698,995
              
              
              
              3,084,956Accounts
      Payable
              
              
              794,220
              
              
              
              679,673Accrued
      Payroll and Payroll Taxes
              
              
              75,658
              
              
              
              107,858Accrued
      Sales and Warranty Reserve
              
              
              200,000
              
              
              
              450,000Accrued
      Expenses
              
              
              373,454
              
              
              
              559,377Total
      Current Liabilities
              
              
              3,953,604
              
              
              
              5,922,943LONG-TERM
      LIABILITIESLong-term
      Debt, Net of Current Portion
              
              
              426,527
              
              
              
              525,401Note
      Payable – Related Party
              
              
              949,850
              
              
              
              924,775Deferred
      Retirement Benefits, Net of Current Portion
              
              
              392,633
              
              
              
              422,776Total
      Non-Current Liabilities
              
              
              1,769,010
              
              
              
              1,872,952Total
      Liabilities
              
              
              5,722,614
              
              
              
              7,795,895STOCKHOLDERS’
      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
              
              
              7,146,803
              
              
              
              7,141,368`Accumulated
      Deficit
              
              
              (10,293,561
              )
              
              
              (4,668,516
              )Total
      Stockholders’ Equity
              
              
              (2,776,745)
              
              
              
              2,842,865TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
              
              $
              2,945,869
              
              
              $
              10,638,760
 
 See
accompanying notes to condensed consolidated financial
statements.
  Index
  SwordfishFinancial, Inc. and Subsidiaries
 Consolidated
Statements of Operations (Unaudited)
 
 Three
      months ended June 30,
              
              
              Six
      months ended June 30,2009
              
              
              2008
              
              
              2009
              
              
              2008SALES,
      NET
              
              $
              2,021,692
              
              
              $
              1,450,166
              
              
              $
              3,900,753
              
              
              $
              3,817,231COST
      OF GOOD SOLD
              
              
              1,814,189
              
              
              
              1,452,103
              
              
              
              3,448,145
              
              
              
              3,170,586GROSS
      PROFIT(LOSS)
              
              
              207,502
              
              
              
              (1,937
              )
              
              
              452,608
              
              
              
              646,646OPERATING
      EXPENSESSales
      and marketing
              
              
              186,909
              
              
              
              332,901
              
              
              
              592,939
              
              
              
              852,943Research
      and Development and Engineering
              
              
              149,269
              
              
              
              174,446
              
              
              
              351,166
              
              
              
              302,059General
      and Administrative
              
              
              549,833
              
              
              
              388,674
              
              
              
              952,677
              
              
              
              857,906Inventory,
      Equipment and Intangible Impairment Allowance
              
              
              3,963,708
              
              
              
              0
              
              
              
              3,963,708
              
              
              
              0Total
      Operating Expenses
              
              
              4,849,719
              
              
              
              896,021
              
              
              
              5,860,490
              
              
              
              2,012,908LOSS
      FROM OPERATIONS
              
              
              (4,642,217
              )
              
              
              (897,9580
              
              
              
              (5,407,882
              )
              
              
              (1,366,263
              )OTHER
      INCOME (EXPENSE)Interest
      expense
              
              
              (130,371
              )
              
              
              (96,615
              )
              
              
              (267,360
              )
              
              
              (265,165
              )Interest
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Other
      expenses
              
              
              (11,878
              )
              
              
              (1,659
              )
              
              
              (9,135
              )
              
              
              (1,659
              )Net
      Other Income (Expenses)
              
              
              (142,249
              )
              
              
              (98,274
              )
              
              
              (276,495
              )
              
              
              (266,824
              )LOSS
      FROM CONTINUING OPERATIONS BEFORE TAXES
              
              
              (4,784,466
              
              
              
              (996,232
              )
              
              
              (5,684,377
              )
              
              
              (1,633,087
              )PROVISION
      FOR INCOME TAX EXPENSE
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0LOSS
      FROM CONTINUING OPERATIONS
              
              
              (4,784,466
              )
              
              
              (996,232
              )
              
              
              (5.684,377
              )
              
              
              (1,633,087
              )GAIN  FROM
      DISCONTINUED OPERATIONS, NET  OF TAX
              
              
              0
              
              
              
              1,070,228
              
              
              
              59,332
              
              
              
              1,114,805NET
      INCOME (LOSS)
              
              $
              (4,784,466
              )
              
              $
              73,996
              
              
              $
              (5,625,045
              )
              
              $
              (518,282
              )Loss
      from continuing operations per common shareBasic
              
              $
              (2.07
              )
              
              $
              (0.43
              )
              
              $
              (2.46
              )
              
              $
              (0.71
              )Diluted
              
              $
              (2.07
              )
              
              $
              (0.43
              )
              
              $
              (2.46
              )
              
              $
              (0.71
              )Gain
      from discontinued operations per common shareBasic
              
              $
              0.00
              
              
              $
              0.46
              
              
              $
              0.03
              
              
              $
              0.49Diluted
              
              $
              0.00
              
              
              $
              0.46
              
              
              $
              0.03
              
              
              $
              0.49Net
      income (loss) per common shareBasic
              
              $
              (2.07
              )
              
              $
              0.03
              
              
              $
              (2.43
              )
              
              $
              (0.22
              )Diluted
              
              $
              (2.07
              )
              
              $
              0.03
              
              
              $
              (2.43
              )
              
              $
              (0.22
              )Weighted
      average common sharesBasic
              
              
              2,312,583
              
              
              
              2,312,583
              
              
              
              2,312,583
              
              
              
              2,312,583Diluted
              
              
              2,312,583
              
              
              
              2,312,583
              
              
              
              2,312,583
              
              
              
              2,312,583
 
 See
accompanying notes to consolidated financial statements.
  2
 Index
  SwordfishFinancial, Inc. and Subsidiaries
 Consolidated
Statements of Cash Flows (Unaudited)
 Six
Months Ended June 30, 2009 and 2008
 
 2009
              
              
              2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
              
              $
              (5,625,045
              )
              
              $
              (518,282
              )Adjustments
      to reconcile net loss to net cash flows from operating
      activitiesDepreciation
      and amortization
              
              
              339,146
              
              
              
              383,089Gain
      on sale of discontinued operations
              
              
              0
              
              
              
              (161,346
              )Increase
      in allowance for doubtful accounts
              
              
              100,000
              
              
              
              -Loss
      on impairment of inventory
              
              
              1,500,000
              
              
              
              28,180Loss
      on impairment of property and equipment
              
              
              1,591,553
              
              
              
              0Loss
      on impairment of intangibles
              
              
              872,155
              
              
              
              0Gain
      on sale of building, net of income taxes
              
              
              0
              
              
              
              (998,950
              ) )Stock
      based compensation
              
              
              5,435
              
              
              
              3,348Amortization
      of original issue discount
              
              
              0
              
              
              
              20,841Changes
      in operating assets and liabilitiesAccounts
      receivable
              
              
              1,853,812
              
              
              
              1,987,002Inventories,
      net
              
              
              1,209,508
              
              
              
              689,526Prepaid
      expenses
              
              
              105,291
              
              
              
              89,005Accounts
      payable
              
              
              114,547
              
              
              
              (169,827
              )Accrued
      payroll and payroll taxes
              
              
              (32,200
              )
              
              
              (24,455
              )Accrued
      expenses
              
              
              (435,923
              )
              
              
              (309,122
              )Payments
      on deferred retirement benefits
              
              
              (1,473
              )
              
              
              (36,492
              )Net
      Cash Flows from Operating Activities
              
              
              1,596,806
              
              
              
              982,517CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of property and equipment
              
              
              (48,467
              )
              
              
              (237,086
              )Purchase
      of assets associated with Castaic Softbait Brand
              
              
              0
              
              
              
              (340,641
              )Purchase
      of assets from MarCum Technologies
              
              
              0
              
              
              
              (759,521
              )Purchase
      of assets from Innovative Outdoors
              
              
              0
              
              
              
              (10,753
              )Proceeds
      from sale of building
              
              
              0
              
              
              
              2,294,941Proceeds
      from sale of discontinued operations, net
              
              
              0
              
              
              
              161,346Net
      proceeds from sale of working capital associated with discontinued
      operations
              
              
              236,927
              
              
              
              317,461Purchases
      of intangible assets
              
              
              0
              
              
              
              (6,000
              ))
      ( ( )Net
      Cash Flows from (used in) Investing Activities
              
              
              188,460
              
              
              
              1,419,747CASH
      FLOWS FROM FINANCING ACTIVITIESIncrease
      (decrease) in checks issued in excess of cash in bank
              
              
              44,124
              
              
              
              44,626Net
      payments on line of credit, bank
              
              
              (1,385,961
              )
              
              
              (573,689
              )Principal
      payments on long-term debt
              
              
              (126,395
              )
              
              
              (2,004,688
              )Principal
      payment on note payable – related party
              
              
              (250,000
              )
              
              
              -Net
      Cash Flows from (used in) Financing Activities
              
              
              (1,718,232
              )
              
              
              (2,533,751
              )Net
      Change in Cash and Cash Equivalents
              
              
              67,034
              
              
              
              (131,487
              )CASH
      AND CASH EQUIVALENTS - January 1, 2009 and 2008
              
              
              0
              
              
              
              131,487CASH
      AND CASH EQUIVALENTS – June 30, 2008 and 2007
              
              $
              67,034
              
              
              $
              -
 
 See
accompanying notes to consolidated financial statements.
  3
 Index
  SWORDFISHFINANCIAL, INC. AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2009 and 2008 (Unaudited)
 
 NOTE 1 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 NATURE OF
OPERATIONS
 
 Swordfish
Financial, Inc. (fka Nature Vision, Inc.) (the Company or we) is an outdoor
recreation products Company. The Company designs and markets primarily
outdoor recreation products for the sport fishing and sport hunting
markets. The Company grants unsecured credit to its customers which are
primarily dealers and consumers located throughout the United States and
Canada. The Company contracts with outside organizations for the
manufacture and sale of the majority of its products. The geographic market
in which the Company competes consists of the entire United States and Canada
and, to a lesser extent some foreign countries.
 
 Because
of seasonal and other factors, the results of operations for the six months
ended June 30, 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 $5,625,045 and
$518,282, respectively, for the six months ended June 30, 2009 and 2008 and had
an accumulated deficit of $10,293,561 as of June 30, 2009.  We have
managed our liquidity during the six months of 2009 through cost reduction
initiatives and the proceeds from collections on accounts
receivables.  The Company is currently in default of the remaining
$450,000 of the note with a related party and is in negotiations to extend the
remaining $450,000 of the CEO’s note (Note 6).
 The
Company is currently in default on its line of credit with a bank and in August
2008 it entered into a voluntary surrender agreement allowing the bank ( as
discussed in Subsequent Event Note 14) with its superior lien position to assume
control of the Company’s assets and operations until it liquidates sufficient
assets to pay off the line of credit which is $1,698,995 at June 30,
2009.
 
 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 six 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 September  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.  See
Subsequent Event Note 14, for a discussion of capital acquired by the
Company.  There can be no assurance that this financing arrangement
will alleviate the Company’s 12 month working capital needs unless it is
funded.
 
 INTERIM
FINANCIAL INFORMATION
 
 The
accompanying condensed consolidated balance sheet at June 30, 2009 and the
condensed consolidated statements of operations and cash flows for the six
months ended June 30, 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 six months ended June
30, 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 six months ended
June 30, 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
 
 The
condensed consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All significant inter-company transactions and
balances have been eliminated in consolidation.
  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 are due based on agreed upon customer terms. Accounts
receivable are considered past due once they are over the due date of these
terms. The Company does not accrue interest on past due accounts
receivable. If accounts receivable in excess of the provided allowance are
determined uncollectible, they are charged to expense in the year that
determination is made. Accounts receivable are written off after all collection
efforts have failed. Accounts receivable have been reduced by an allowance for
uncollectible accounts of approximately $241,000 and $37,500 at June 30, 2009
and December 31, 2008, respectively.
 
 INVENTORIES
 
 Inventories
consist of raw materials and finished goods and are valued at the lower of
standard cost (which approximates the first-in, first-out (FIFO) method) or
market. Market represents estimated realizable value in the case of finished
goods and replacement or reproduction cost in the case of other inventories.
Because of changing technology, 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.  Due to the uncertainty of the ultimate results of the
Bank’s sale off the Company’s assets to satisfy its loan position, the Company
recorded a non-cash charge of $1,500,000 in the second quarter of fiscal 2009
for inventory impairment.  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 June 30, 2009 and December 31, 2008,
respectively.
 
 INTANGIBLE
ASSETS AND 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.
 
 The
long-term portion of prepaid expenses consists of deferred financing costs of
$24,899 and $32,422 at June 30, 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.
 
 Due to
the uncertainty of the ultimate results of the M&I Bank’s foreclosure and
sale-off of the Company’s assets to satisfy its loan position, the Company
recorded a non-cash charge of $1,591,553 in the second quarter of fiscal 2009
for property and equipment impairment.  Net intangible assets and
long-lived assets amounted to $112,693 and $2.9 million as of June 30, 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.  Due to the uncertainty of the
ultimate results of the M&I Bank’s foreclosure and sale-off
of  the Company’s assets to satisfy its loan position, the Company
recorded a non-cash charge of $872,155 in the second quarter of fiscal 2009 for
intangible impairment.  The balance of intangibles was $0 and $965,430
as of June 30, 2009 and December 31, 2008, respectively.
 
 In
particular, if we no longer believe we will achieve our long-term projected
sales or operating expenses, we may conclude in connection with any future
impairment tests that the estimated fair value of our long-lived assets,
including intangible assets, are less than the book value and recognize an
additional impairment charge.  Such impairment would adversely affect
our earnings.
 
 DISCONTINUED
OPERATIONS
 
 On
February 5, 2007, the Company sold certain assets and transferred certain
liabilities related to its Vaddio division.
 
 These
assets met the requirements of SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets" as being held for sale. Operations and cash flows
were eliminated as a result of the sales and the Company did not have any
significant involvement in the operations after the sales. The results of the
Vaddio product 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 continuing operations
(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 to two years from the date of
retail purchase and therefore permits returns for defective product within the
first few months of purchase and repairs products up through the end of the
warranty period. Estimated reserves for sales / warranty returns are established
by management based on historical experience and are subject to ongoing review
and adjustment by the Company. Sales are reported net of the provision for
actual and estimated future returns 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 $200,000 and $450,000 at June 30, 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 the six months ended
June 30, 2009 and 2008.
 
 
 2009
              
              
              2008Accrued
      balance - beginning
              
              $
              450,000
              
              
              $
              300,000Provision
              
              
              85,000
              
              
              
              201,000Claims
      incurred
              
              
              (335,000
              )
              
              
              (291,000
              )Accrued
      balance - ending
              
              $
              200,000
              
              
              $
              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 the six months ended June 30, 2009 and
2008.
 
 The
following assumptions were used to calculate the value of the options granted
during the six months ended June 30, 2008: dividend yield of 0%, risk-free
interest rate of 3%, expected life equal to 3.5 years, and volatility of
76%. There were no stock options granted during the six months ended June
30, 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 $5,435 and $3,180 of stock based
compensation for the six months ended June 30, 2009 and 2008,
respectively.  As of June 30, 2009, there was $22,393 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 six months ended June 30, 2009 was $0.89.
 
 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 six months ended June 30, 2009 and 2008. Anti-dilutive options
and warrants were 369,455 and 219,450 at June 30, 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 of June 30, 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 the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ significantly from
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
six months ended June 30, 2008:
 
 June
      30, 2008As
      reported
              
              Pro
      formaNet
      sales
              
              $
              3,817,231
              
              
              $
              4,061,520Loss
      from continuing operations
              
              
              (1,633,087
              )
              
              
              (1,933,636
              )Gain
      from discontinued operations
              
              
              1,114,805
              
              
              
              1,114,805Net
      loss
              
              $
              (518,282
              )
              
              $
              (818,831
              )Loss
      per common share:Basic
              
              $
              (0.22
              )
              
              $
              (0.35
              )Diluted
              
              $
              (0.22
              )
              
              $
              (0.35
              )
 
 
 For the
three months ended June 30, 2008:
 
 June
      30, 2008As
      reported
              
              Pro
      formaNet
      sales
              
              $
              1,450,166
              
              
              $
              1,450,166Loss
      from continuing operations
              
              
              (996,232
              )
              
              
              (996,232
              )Gain
      from discontinued operations
              
              
              1,070,228
              
              
              
              1,070,228Net
      income
              
              $
              73,996
              
              
              $
              73,996Income
      per common share:Basic
              
              $
              0.03
              
              
              $
              0.03Diluted
              
              $
              0.03
              
              
              $
              0.03
 
 
 NOTE 3 -
INVENTORIES
 
 Inventories
consisted of the following at:
 
 June
      30,
                2009
              
              
              December
      31,
                2008Raw
      Materials
              
              $
              1,604,134
              
              
              $
              2,200,836Finished
      Goods
              
              
              1,615,117
              
              
              
              2,267,923Total
              
              
              3,219,251
              
              
              
              4,468,759Less:
      Valuation allowance
              
              
              (1,615,000
              )
              
              
              (155,000
              )Inventories,
      net
              
              $
              1,604,251
              
              
              $
              4,313,759
  11
 Index
  NOTE 4 -
PROPERTY AND EQUIPMENT
 
 Property
and equipment consisted of the following at:
 
 June
      30,
                2009
              
              
              December
      31,
                2008Tooling
              
              $
              1,605,536
              
              
              $
              1,603,236Office
      furniture and equipment
              
              
              545,257
              
              
              
              560,257Warehouse
      equipment
              
              
              485,411
              
              
              
              437,952Vehicles
              
              
              7,418
              
              
              
              7,418Leasehold
      improvements
              
              
              359,729
              
              
              
              359,729Construction
      in progress
              
              
              91,552
              
              
              
              77,845Total
              
              
              3,094,903
              
              
              
              3,046,437Less:
      Accumulated depreciation
              
              
              (1,390,658
              )
              
              
              (1,144,787
              )Less:
      Valuation allowance
              
              
              (1,591,553
              )
              
              
              0Net
              
              $
              112,693
              
              
              $
              1,901,650
  Depreciation
expense of $364,551 and $243,446 was recorded for the six months ended June 30,
2009 and 2008, respectively.
 
 
 NOTE 5 -
INTANGIBLES
 
 Schedule
of Intangible Assets at June 30:
 
 2009Gross
      Carrying Amount
              
              
              Impairment
              
              
              Accumulated
      Amortization
              
              
              Net
      Carrying Amount at June 30, 2009Intangible
      assets subject to amortization:Trademarks
              
              $
              404,235
              
              
              $
              316,905
              
              
              $
              87,330
              
              
              $
              0Non-compete
              
              
              314,817
              
              
              
              186,942
              
              
              
              127,875
              
              
              
              0Customer
      lists
              
              
              40,000
              
              
              
              25,944
              
              
              
              14,056
              
              
              
              0Intellectual
      property and related patents
              
              
              406,505
              
              
              
              321,179
              
              
              
              85,326
              
              
              
              0Other
              
              
              24,684
              
              
              
              21,185
              
              
              
              3,499
              
              
              
              0Totals
              
              $
              1,190,241
              
              
              $
              872,155
              
              
              $
              318,086
              
              
              $
              0
 
 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 $131,183 and $139,642  for the six months ended June 30,
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 lender agreed to the cancellation of these warrants on August 14, 2009
– See Subsequent Event Note 14). 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 six months ended June 30,
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 $73,000 of
interest for the six months ended June 30, 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 lender agreed to the cancellation of the warrants on August 14,
2009).  The warrants are exercisable from July 8, 2008 to June 30,
2013  (the Board Member agreed to the cancellation of the warrants on
August 14, 2009 – See Subsequent Event Note 14).  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 $25,149 for the six months ended June 30, 2009 and
is included in interest expense.
 
 Chief
Executive Officer Note 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 $34,000 of interest for the six months ended June 30,
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 CEO agreed to the cancellation of the warrants on August 14, 2009 –
See Subsequent Event Note 14). 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
June 30, 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 pay an annual line fee of
$45,000 and minimum interest of $120,000 on an annual basis. The balance
outstanding on the line of credit was $1,698,995 at June 30, 2009 and $3,084,956
at December 31, 2008.  The terms of the credit agreement are written
such that the line will stay in place for up to three years if the Company can
satisfactorily perform within certain covenants outlined by the
bank.  The agreement required the Company to be in compliance with the
following affirmative covenants as of March 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
worth covenants as of June 30, 2009, which put the Company in default on
its line of credit with a bank and in August 2008 it entered into a voluntary
surrender agreement (As discussed in Subsequent Event Note 14) allowing the bank
with its superior lien position to assume control of the Company’s assets and
operations until it liquidates sufficient assets to pay off the line of credit
of is $1,698,995 at June 30, 2009.
  13
 Index
  NOTE 8 -
LONG-TERM DEBT
 
 Long-term
debt consisted of the following at:
 
 June
      30,
                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.
              
              $
              418,630
              
              
              $
              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
              
              
              20,905
              
              
              
              26,978Unsecured
      Note Payable – monthly installments of $1,458, including interest at 7%,
      from August 2008 through July 2010
              
              
              18,206
              
              
              
              24,850Unsecured
      Note Payable – Innovative Outdoors – monthly installments of $4,632,
      including interest at 7% from August 2008 through July
2011
              
              
              107,451
              
              
              
              127,129Totals
              
              
              662,479
              
              
              
              783,806Less:
      Current portion
              
              
              235,952
              
              
              
              258,405Net
      Long-Term Debt
              
              $
              426,527
              
              
              $
              525,401
 
 Future
maturities of long-term debt for years ending after June 30, 2009 are as
follows:
 TotalYear
      ending June 30:2010
              
              $
              235,9522011
              
              
              209,4802012
              
              
              117,4622013
              
              
              99,5852014
      and forward
              
              
              -Total
      Long-Term Debt
              
              $
              662,479
  14
 Index
  NOTE 9 -
INCOME TAXES
 
 The
provision for income taxes for continuing operations consists of the following
components for the six months ended June 30:
 
 2009
              
              2008Current
              
              $
              -
              
              
              $
              -Deferred
              
              
              -
              
              
              
              -Total
      Benefit from Income Taxes
              
              $
              -
              
              
              $
              -
 
 A
comparison of the provision for income tax expense at the federal statutory rate
of 34% for the six months ended June 30 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 in Brainerd, Minnesota. The lease commenced
on September 1, 2006 and expires on August 31, 2016.  The lease was
amended in May 2008 for additional space, a sprinkler system improvement
addition, and the term extended through August 31, 2018. The lease was
further amended by a second amendment as of July 1, 2009 giving the Company and
the Landlord the right to terminate the lease effective as of December 31, 2009
by giving 30 days notice prior to the effective date of
termination.  This second amendment also reduces the monthly rent from
$21,801 to $15,000 with the $6,801 being deferred and waived by the Landlord if
the Company timely pays the Adjusted Monthly Charge through December 31,
2009.  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.
 
 Based on
the terms of the second amendment the Company will have the right to terminate
the lease on December 31, 2009 by giving the Landlord notice on or before
November 30, 2009.   The future minimum lease payments through
December 31, 2009 are $90,000.
 
 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
$138,000 of expense relating to this agreement for the six months ended June 30,
2009, which is included in research and development and engineering
expense.
  15
 Index
  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 $56,000 of expense relating to this agreement for the six months
ended June 30, 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 revenue from one unaffiliated customer
during the six months ended June 30, 2009 and 2008, respectively.
 
 The
Company had three unaffiliated customers at June 30, 2009 with outstanding
balances of $368,202, $181,250 and $174,609 that were greater than 10% of its
accounts receivable.
 
 The
Company had two unaffiliated customers at December 31, 2008 with outstanding
balances of $485,908 and $309,721 that were greater than 10% of its accounts
receivable.
 
 
 Foreign
Inventory
 
 Included
in the consolidated balance sheets are international inventories of $ -0- at
June 30, 2009 and $351,690 at December 31, 2008,
respectively.  Foreign inventories consist of raw material goods held
in Asia and Mexico and used in the production of the Company’s
products.
 
 Foreign
Sales and Long-Lived Assets
 
 The
following table presents net sales by geographic area for the six months ended
June 30:
 
 Geographic
      Data
              
              2009
              
              
              2008Net
      SalesUnited
      States
              
              $
              3,404,655
              
              
              $
              1,933,567International
              
              
              496,098
              
              
              
              433,498Total
      net sales
              
              $
              3,900,753
              
              
              $
              2,367,065
  16
 Index
  The
following table presents property, plant, and equipment by geographic area as of
June 30, 2009 and December 31, 2008:
 
 Geographic
      Data
              
              June
      30,
                2009
              
              
              December
      31,
                2008Property,
      plant, and equipmentUnited
      States
              
              $
              112,693
              
              
              $
              1,023,517International
              
              
              0
              
              
              
              878,133Total
      property, plant, and equipment
              
              $
              112,693
              
              
              $
              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 were no remaining deferred sale proceeds to be earned or
collected.
 
 The
following are condensed statements of the discontinued operations (Vaddio) for
the six months ended June 30:
 
 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 June 30, 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
              
              $
              331,569
              
              
              $
              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
 
 NOTE 14 –
SUBSEQUENT EVENTS
  On August
14, 2009, Nature Vision, Inc. (the “Company”) closed a Stock Purchase Agreement
with Swordfish Financial, Inc. pursuant to which the Company sold an aggregate
of 10,987,417 shares of its common stock in exchange for a $3,500,000 promissory
note payable in two installments of $1,750,000 each with the first installment
being forty-five (45) days from the date of the note and the second installment
being one-hundred twenty (120) days from the date of the
note.   The agreement provided that all stock options and
warrants issued and outstanding would be voluntarily cancelled by their holders
and also that note payable to Directors of the Company would be extended for
twelve months from the date of the agreement.
 
 On August
14, 2009, simultaneously with the signing of the Swordfish Financial, Inc.
agreement, the Company entered into a Voluntary Surrender Agreement with its
primary lender, M&I Business Credit LLC (the ‘Creditor”), who as of August
14, 2009 was owed approximately $1,800,000 by the Company resulting
from  a Credit and Security Agreement dated November 8, 2007 (as
amended or supplemented, the “Credit Agreement”).  In accordance with
the Voluntary Surrender Agreement, the Company agreed to tender to Creditor
possession of the Company’s Premises and all of the Company’s Collateral, which
was basically all of the Company’s assets.
 
 On August
17, 2009, the Company executed a Subordination Agreement and Demand Note with a
shareholder of the Company for $200,000.
 
 On August
14, 2009, the Company was delisted from The Nasdaq Stock Market (“Nasdaq”) down
to the OTC Pink Sheets due to the Company’s failure to comply with the minimum
stockholders’ equity requirement of $2,500,000 for continued listing set forth
in Nasdaq Listing Rule 5550.
  18
 Index
  As a
result of the transaction with Swordfish Financial,  Inc. described
above, a change in control occurred with respect to the Company’s capital stock
ownership.  Mssrs Richard P. Kiphart, Jeffery P. Zernov, Scott S.
Meyers and Curtis A. Sampson served as the members of the Board of Directors.
Pursuant to the terms and conditions set forth in the Stock Purchase Agreement,
immediately following the closing of the Transaction, (1) On August 13, 2009,
Michael D. Alexander and Randy J. Moseley were appointed as a members to the
Board of Directors effective August 14, 2009  and (2) Richard P.
Kiphart, Jeffery P. Zernov, Scott S. Meyers and Curtis A. Sampson voluntarily
tendered their resignations, effective August 14, 2009, as members of the
Company’s Board of Directors.
 
 On August
13, 2009, the Company received from each of Jeffrey P. Zernov, President and
Chief Executive Officer and Robert P. King, Chief Financial Officer and
Secretary a letter voluntarily resigning their respective officer positions with
the Company.
 
 On August
17, 2009, the board of directors appointed Michael D. Alexander as the President
and Chief Executive Officer of the Company and Randy Moseley as Chief Financial
Officer of the Company.
 
 On
August 17, 2009, the board of directors voted to amend the Company’s Articles of
Incorporation to change the name of the Company to Swordfish Financial,
Inc.
  19
 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 financial
statements.  This discussion contains forward-looking statements that
involve risks and uncertainties, including information with respect to our
plans, intentions and strategies for our businesses. Our actual results may
differ materially from those estimated or projected in any of these
forward-looking statements.
 
 Overview
 
 Nature
Vision, Inc., (f/k/a Photo Control Corporation) (the “Company” or “we”) was
incorporated as a Minnesota corporation in 1959. On August 31, 2004, the Company
changed its name to Nature Vision, Inc. in connection with a merger transaction
with Nature Vision Operating Inc. (f/k/a Nature Vision, Inc.) a Minnesota
corporation that was incorporated in 1998. As a part of the merger, Nature
Vision Operating Inc. became a wholly-owned subsidiary of the Company. The
shares of the combined company traded on the Nasdaq Capital Market under the
symbol, “NRVN.”  On August 14, 2009 as described in Subsequent Event
Note 14, Nature Vision, Inc. closed a Stock Purchase Agreement with Swordfish
Financial, Inc. pursuant to which the Company sold an aggregate of 10,987,417
shares of its common stock in exchange for a $3,500,000 promissory note
payable.  The name of the Company was changed to Swordfish Financial,
Inc. and trades on the OTC Pinksheets under the symbol. “SWRF.”
 
 Nature
Vision designed, manufactured and marketed 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.  See
Subsequent Event Note 14 for discussion of new financing in August
2009.  There can be no assurance that the new financing will 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.
  20
 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:
 
 
 (in
      thousands)
              
              Three
      months ended June 30
              
              
              Increase
      (Decrease)
              
              
              Six
      months ended June 30
              
              
              Increase
      (Decrease)2009
              
              
              2008
              
              
              
              
              
              2009
              
              
              2008Underwater
      Viewing
              
              $
              1,180,976
              
              
              $
              527,230
              
              
              
              124.0
              %
              
              $
              2,102,976
              
              
              $
              1,903,230
              
              
              
              10.5
              %Fishing
      Trolling systems
              
              
              193,527
              
              
              
              94,167
              
              
              
              105.5
              %
              
              
              266,527
              
              
              
              136,167
              
              
              
              95.7
              %Hunting
              
              
              234,793
              
              
              
              411,719
              
              
              
              (43.0
              )%
              
              
              627,793
              
              
              
              1,052,719
              
              
              
              (40.4)
              %Ice
      Fishing
              
              
              16,299
              
              
              
              0
              
              
              
              
              
              
              
              55,299
              
              
              
              43,903
              
              
              
              26.0
              %Fishing
      Lures
              
              
              168,734
              
              
              
              106,710
              
              
              
              58.1
              %
              
              
              337,734
              
              
              
              249,710
              
              
              
              16.0
              %Industrial
              
              
              124,133
              
              
              
              166,699
              
              
              
              (25.5
              )%
              
              
              234,133
              
              
              
              309,699
              
              
              
              31.2
              %Other,
      (including freight, services
              
              
              103,230
              
              
              
              143,641
              
              
              
              (28.1
              )%
              
              
              276,291
              
              
              
              121,803
              
              
              
              126.8
              %Total
      Net Sales
              
              $
              2,021,692
              
              
              $
              1,450,166
              
              
              
              39.4
              %
              
              $
              3,900,753
              
              
              $
              3,817,231
              
              
              
              2.2
              %
  The
following table contains selected information from our historical consolidated
statement of operations, expressed as a percentage of net sales for the three
months and six months ended June 30, 2009 and 2008,
respectively:
 
 Three
      months ended June 30
              
              
              Six
      months ended June 302009
              
              
              2008
              
              
              2009
              
              
              2008Net
      Sales
              
              
              100
              %
              
              
              100
              %
              
              
              100
              %
              
              
              100
              %Cost
      of goods sold
              
              
              90.0
              
              
              
              100.1
              
              
              
              88.4
              
              
              
              83.1Gross
      Margin
              
              
              10.0
              
              
              
              (0.1
              )
              
              
              11.6
              
              
              
              16.9Sales
      and marketing expenses
              
              
              9.2
              
              
              
              23.0
              
              
              
              15.2
              
              
              
              22.3Research
      & development
              
              
              7.4
              
              
              
              12.0
              
              
              
              9.0
              
              
              
              7.94General
      and administrative expenses
              
              
              27.2
              
              
              
              26.8
              
              
              
              24.4
              
              
              
              22.5Provision
      for impairment
              
              
              196.0
              
              
              
              0.0
              
              
              
              101.6
              
              
              
              0.0Total
      operating expenses
              
              
              239.88
              
              
              
              61.8
              
              
              
              150.2
              
              
              
              52.7Loss
      from operations
              
              
              (229.62
              )
              
              
              (61.9
              )
              
              
              (138.6
              )
              
              
              (35.8
              )Other
      expense
              
              
              (7.00
              )
              
              
              (6.8
              )
              
              
              (7.1
              )
              
              
              (7.0
              )Provision
      for income taxes
              
              
              0.0
              
              
              
              0.0
              
              
              
              0.0
              
              
              
              0.0Gain
      from discontinued operations
              
              
              0.0
              
              
              
              73.8
              
              
              
              1.5
              
              
              
              29.2Net
      Loss
              
              
              (236.62
              )%
              
              
              5.1
              %
              
              
              (144.2
              )%
              
              
              (13.6
              )%
  21
 Index
  Net
Sales
 
 Net sales
for the quarter ending June 30, 2009 of $2,021,692 were up by $571,526, or 39.4%
compared to net sales of $1,450,166 during the same period last
year.  Year to date net sales for the six months ending June 30, 2008
of $3,900,753 were up by $83,522, or 2.2% compared to net sales of $3,817,231
during the same period last year.
 
 Net sales
gains for the second quarter were primarily driven from acquisitions during the
past two years resulting in strong sales of viewing systems providing $653,746
or 124% in increased sales for the quarter ending June 30, 2009 compared to the
same period last year.  Overall, net sales gains during the second
quarter were also favorably impacted by actual returns of products which are
down by 15.0% compared to the same period last year.
 
 Net sales
gains for the six months ending June 30, 2008 were also driven from acquisitions
in previous years resulting in strong sales of viewing systems providing
$199,746 or 10.5%  in increased sales for the six months ended June
30, 2009 compared to the same period last year.  Overall, net sales
gains during the first half of 2009 were also favorably impacted by actual
returns which are down by $233,820 or 72.3% compared to the same period last
year.
 
 Gross
Profit
 
 Gross
profit of $207,502 was 10.3% of net sales for the three months ended June 30,
2009 compared to $(1,937) or (0.01)% of net sales for the prior year three
months ended.  The primary reasons for the increase in the gross
margin as compared to the prior year was an increase of $653,746  in
sales of viewing systems, an increase of $99,360 in fishing trolling systems, an
increase of $62,024 in sales of fishing lures being offset by a decrease of
$176,926 in hunting and industrial lines.
 
 Gross
profit of $452,608 was 11.6% of net sales for the six months ended June 30, 2009
compared to $646,646 or 16.9% of net sales for the prior year six months
ended.  The primary reasons for the decrease in the gross margin as
compared to the prior year was an increase of $199,746 in sales of viewing
systems, an increase of $130,360 in fishing trolling systems, an increase of
$88,000 in sales of fishing lures being offset by a decrease of $424,926 in
hunting and industrial lines.  The gross profit for the first half of
2009 was also favorably impacted by actual returns which are down by $233,820 or
72.3% compared to the same period last year.
 
 Selling,
General and Administrative Expenses
 
 Total
selling, general and administrative expenses for the quarter ending June 30,
2009 of $886,011, or 43.8% of sales, were up from spending of $896,021 or 61.8%
of sales during the comparative period in fiscal 2008. Selling, general and
administrative costs have decreased by $10,010 primarily due to sales and
marketing expense decreasing by $145,992 primarily due to lower advertising
expenses and general and administrative expense increasing by $161,159 due
primarily to increases in accounting, legal fees, and other general and
administrative expenses.
 
 Total
selling, general and administrative expenses for the six months ending June 30,
2009 of $1,896,782 or 48.6% of sales, were up from spending of $2,012,908, or
52.7% of sales during the comparative period in fiscal 2008.  Selling,
general and administrative costs have decreased by $116,126 for the six months
ended June 30, 2009 primarily due to a $259,974 decrease in sales and marketing
expenses$3,964,000 due to lower advertising expenses and general and
administrative expenses increasing by $94,771due primarily to increases in
accounting, legal fees, and other general and administrative
expenses.
 
 Operating
Expenses
 
 Total
operating expenses for the three months ending June 30, 2009 of $4,849,719, or
239.9% of sales, were up from spending of $896,021, or 61.8% of sales during the
comparative period in fiscal 2008.  Total operating expenses increased
for the three months ended June 30, 2009 primarily due to a $3,963,708 provision
for impairment of assets.  Sales and marketing expense is lower by
$145,992 primarily due to lower advertising expenses.   General
and administrative expense increased by $161,159 due primarily to increases in
accounting, legal fees, and other general and administrative
expenses.
 
 Total
operating expenses for the six months ending June 30, 2009 of $5,860,490 or
150.2% of sales, were up from spending of $2,012,908, or 52.7% of sales during
the comparative period in fiscal 2008.  Selling, general and administrative
costs have increased for the six months ended June 30, 2009 primarily due to a
$3,963,708 provision for impairment of assets.  Sales and marketing
expense is lower by $259,974 primarily due to lower advertising
expenses.   General and administrative expense increased by
$94,771 due primarily to increases in accounting, legal fees, and other general
and administrative expenses.
  22
 Index
  Other
Income and Expenses
 
 Other
expense increased by $43,975 for the three months ended June 30, 2009 as
compared to the prior year three months ended. The increase is related to higher
interest expense on the Company’s debt.
 
 Other
expense increased by $9,671 for the six months ended June 30, 2009 as compared
to the prior year three months ended. The increase is related to other expenses
increasing by $7,476.
 
 Loss
from Continuing Operations
 
 The
Company recognized a pretax loss of $4,784,466 for the three months ended June
30, 2009, compared to a pretax loss of $996,232 for the three months ended June
30, 2008.  The increase in the pretax loss is as a result of the
fluctuations discussed above and $3,963,708 in impairment allowances against the
Company’s assets due to the M&I Bank’s taking over the Company’s assets and
operations and liquidating the assets to recover approximately $1,699,000 owed
by the Company.
 
 The
Company recognized a pretax loss of $5,684,377 for the six months ended June 30,
2009, compared to a pretax loss of $1,633,087 for the six months ended June 30,
2008.  The increase in the pretax loss is as a result of the
fluctuations discussed above and $3,963,708 in impairment allowances against the
Company’s assets due to the M&I Bank’s taking over the Company’s assets and
operations and liquidating the assets to recover approximately $1,699,000 owed
by the Company.
 
 Gain
from Discontinued Operations
 
 In the
three months ended June 30, 2009, the Company  had no gain from
discontinued operations, while in the three months ended June 30, 2008, the
Company recognized a gain of $1,070,228 which was composed of $999,228 from the
sale of its facilities in New Hope, MN. and $80,000 from the sale of the Vaddio
product line less $9,000 in allocated selling, general and administrative
expenses.
 
 In the
six months ended June 30, 2009, the Company recognized a $59,332 gain from
discontinued operations on the sale of the Vaddio product line, while in the six
months ended June 30, 2008, the Company recognized a gain of $1,114,805 which
was composed of $999,000 from the sale of its facilities in New Hope, MN. and
$161,000 from the sale of the Vaddio product line less $44,805 in allocated
selling, general and administrative expenses.
 
 Net
Loss
 
 The
Company recognized a net loss of approximately $4,784,466 for the three months
ended June 30, 2009 compared to a net income of $73,996 for the three months
ended June 30, 2008.  The increase in the net loss is as a result of
the fluctuations discussed above and $3,963,708 in impairment allowances against
the Company’s assets due to the M&I Bank’s taking over the Company’s assets
and operations and liquidating the assets to recover approximately $1,699,000
owed by the Company and the gain from discontinued operations of $1,070,228 in
2008 that was only $-0- in 2009.
 
 The
Company recognized a net loss of approximately $5,625,045 for the six months
ended June 30, 2009 compared to a net loss of $518,282 for the six months ended
June 30, 2008.  The increase in the net loss is as a result of the
fluctuations discussed above and $3,963,708 in impairment allowances against the
Company’s assets due to the M&I Bank’s taking over the Company’s assets and
operations and liquidating the assets to recover approximately $1,699,000 owed
by the Company and the gain from discontinued operations of $1,114,805 in 2008
that was only $59,332 in 2009.
 
 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 six months ended June 30:
 
 (thousands)
              
              2009
              
              
              2008Cash
      provided by (used for):Operating
      activities
              
              $
              1,597
              
              
              $
              983Investing
      activities
              
              
              188
              
              
              
              1,420Financing
      activities
              
              
              (1,718
              )
              
              
              (2,534
              )Increase
      (decrease) in cash and cash equivalents
              
              $
              67
              
              
              $
              (131
              )
 
 Operating
Activities
 
 Cash
flows from operations totaled $1,596,806 and $982,517 for the six months ended
June 30, 2009 and 2008, respectively. The primary reasons for the cash flow from
operations for the six months ended June 30, 2009 was $4,063,708 of non cash
charges for increases in allowances and provisions for impairments and
$3,063,320 in liquidation of accounts receivable and inventory which
collectively total $7,127,028 compared to the net loss of $5,625,000 produces
approximately $1,596,806 of cash flow.
  23
 Index
  Investing
Activities
 
 Cash
flows provided from (used in) investing activities totaled $188,460 and
$1,419,747 for the six months ended June 30, 2009 and 2008,
respectively.   The proceeds related to the sale of Vaddio
generated approximately $237,000 for the six months ended June 30,
2009.  The Company incurred capital expenditures and intangible
expenditures totaling $48,467 for the six months ended June 30,
2009.
 
 Financing
Activities
 
 Cash
flows provided by (used for) financing activities totaled ($1,718,232) and
($2,533,751) for the six months ended June 30, 2009 and 2008,
respectively.  Payments during the six months ended June 30, 2009 were
$1,385,961 on the bank line of credit, $126,395 on long-term debt and $250,000
on the note payable – related party.
 
 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 pay an annual line fee of $45,000 and minimum interest of
$120,000 on an annual basis. The balance outstanding on the line of credit was
$1,698,995 and $3,084,956 at June 30, 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 of March 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 worth
covenants as of June 30, 2009.  In August 2009, the Company agreed to
a voluntary surrender agreement (See Subsequent Event Note 14) with the bank,
which allows the bank to sell Company assets until the line of credit returns to
a compliant status.
 
 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 CEO agreed to the
cancellation of the warrants in August 2009 (See Subsequent Event Note
14).  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 (The CEO agreed to extend the note for twelve months from August 14, 2009
per the Stock Purchase Agreement discussed in Subsequent Event Note
14).
 
 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 (The
Board of Director agreed to extend the note for twelve months from August 14,
2009 per the Stock Purchase Agreement discussed in Subsequent Event Note 14)
..  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 Director agreed to the cancellation of
the warrants in August 2009 (See Subsequent Event Note 14).
 
 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 $65,000 of expense relating to this agreement for the six months
ended June 30, 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 $55,000 of expense relating to this agreement for the six months
ended June 30, 2009, which is included in research and development and
engineering expense.
  24
 Index
  The
Company entered into a lease agreement for its assembly and distribution
facility and corporate headquarters in Brainerd, Minnesota. The lease commenced
on September 1, 2006 and expires on August 31, 2016.  The lease was
amended in May 2008 for additional space, a sprinkler system improvement
addition, and the term extended through August 31, 2018. The lease was
further amended by a second amendment as of July 1, 2009 giving the Company and
the Landlord the right to terminate the lease effective as of December 31, 2009
by giving the notice 30 days prior to the effective date of
termination.  This second amendment also reduces the monthly rent from
$21,801 to $15,000 with the $6,801 being deferred and waived by the Landlord if
the Company timely pays the Adjusted Monthly Charge through December 31,
2009.  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.
 
 Based on
the terms of the second amendment the Company will have the right to terminate
the lease on December 31, 2009 by giving the Landlord notice on or before
November 30, 2009.   The future minimum lease payments through
December 31, 2009 are $90,000.
 
 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 $5,625,045 and $518,282,
respectively, for the six months ended June 30, 2009 and 2008 and had an
accumulated deficit of $10,294,000 as of June 30, 2009.  We have
managed our liquidity during the first six months of 2009 through cost reduction
initiatives and the proceeds from liquidation of accounts receivable and
inventory.  The Company is currently in default of the remaining
$450,000 of the note payable – related party (the related party agreed in August
2008 to extend the note for twelve months, see Subsequent Event Note
14).  The Company is also not in compliance with the terms of its line
of credit loan from the bank and in August 2008 voluntarily agreed to surrender
the Company’s assets and operations to the bank until the bank liquidates enough
assets to cover its loan, which was $1,698,995 at June 30, 2009.
 
 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 have significantly  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 September
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.
 
 See
Subsequent Event Note 14 for a discussion of the Stock Purchase Agreement the
Company executed with Swordfish Financial, Inc.
 
 The
Company is currently evaluating strategic alternatives that include the
following: (i) raising of capital, or (ii) the sale of the Company’s assets to
pay off its debts.  This process is ongoing and may be lengthy and has
inherent costs.  There can be no assurance that the this process 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
six months ended June 30, 2009.
 
 Off-Balance
Sheet Financing Arrangements
 
 As of
June 30, 2009, there were no off-balance sheet arrangements, unconsolidated
subsidiaries and commitments or guaranties of other parties.
 
 Critical
Accounting 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 inManagement’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 six months ended June 30, 2009.
  25
 Index
  Item3: Quan
 titative 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
Swordfish Financial’s management, including our Chief Executive Officer, Mike
Alexander, and our Chief Financial Officer, Randy Moseley, of the effectiveness
of Swordfish Financial’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. Alexander and
Moseley concluded that our disclosure controls and procedures are
effective.
 
 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, Swordfish Financial’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 June 30, 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 June
30, 2009, our internal control over financial reporting is effective based on
these criteria. This report does not include an attestation report of
Swordfish Financial’s registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to
attestation by Swordfish Financial’s independent registered public accounting
firm pursuant to temporary rules of the Securities and Exchange Commission that
permit Swordfish Financial 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 Swordfish Financial have been detected. Swordfish Financial’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
 
 Item1.  Legal Proceedings.
 
 Breach
of Contract Action
 
 On August
14, 2009, M&I Business Credit LLC, owed approximately $1,800,000 by the
Company, foreclosed on the Company’s assets under a Credit and Security
Agreement dated November 8, 2007 (as amended or supplemented, the “Credit
Agreement”) and the Company entered into a Voluntary Surrender Agreement which
tendered to M&I Business Credit LLC total possession of the Company’s
Premises, operations and all of the Company’s Collateral, which was basically
all of the Company’s assets, until M&I Business Credit LLC liquidates
sufficient assets to pay off the line of credit owed by the
Company.  On October 30, 2009, M&I Business Credit LLC notified
the Company that it had converted sufficient Company assets to recover the
Company’s debt and was turning back to the Company possession of the Company’s
Premises, operations and remaining assets.
 
 The
Company was party to legal action pending in the Minnesota Ninth Judicial
District Court, Crow Wing County,  State of Minnesota styled Esox
Designs, Inc. vs. Nature Vision,
Inc.   The  Plaintiff  filed  complaint  against
the defendants to recover amounts  of approximately $180,000
Plaintiff  claims  under  a  consulting
agreement entered  into in May of 2008.  In November 2009,
Court Issued a default judgment against Nature Vision, Inc. in the Amount of
approximately $180,000.
  26
 Index
  Item1A.  R
 isk
Factors.  Not required by a small business reporting
company.
 
 Item2.  Unregistered Sales of Equity Securities and Use of
Proceeds.  Not applicable.
 
 Item3.  Defaults Upon Senior Securities.  Not
applicable.
 
 Item4.  Submission of Matters to a Vote of Security
Holders.  Not applicable.
 
 Item5.  Other Information.  Not
applicable.
 
 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.
 
 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.
 
 
 SWORDFISH
      FINANCIAL, INC.Date:  December
      28, 2009
              By:
              /s/
      Mike AlexanderIts:  Chief
      Executive Officer and PresidentDate:  December
      28, 2009
              By:
              /s/
      Randy MoseleyIts:  Chief
      Financial Officer






27