<PAGE>

                                  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, 2003

                                       or

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

        for the transition period from _______________ to _______________

                      Commission File Number         0-22982

                               NAVARRE CORPORATION
             (Exact name of registrant as specified in its charter)

                     MINNESOTA                             41-1704319
        (State or other jurisdiction of                  (IRS Employer
        incorporation or organization)                 Identification No.)

                   7400 49TH AVENUE NORTH, NEW HOPE, MN 55428
                    (Address of principal executive offices)

        Registrant's telephone number, including area code (763) 535-8333

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities 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 filing
requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.

Common Stock, No Par Value - 21,616,187 shares as of August 8, 2003

<PAGE>

                               NAVARRE CORPORATION

                                      INDEX

PART I.     FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS.

            Consolidated Balance Sheets -
                     June 30, 2003 and March 31, 2003

            Consolidated Statements of Income -
                     Three months ended June 30, 2003 and 2002

            Consolidated Statements of Cash Flows -
                     Three months ended June 30, 2003 and 2002

            Notes to Consolidated Financial Statements - June 30, 2003

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

ITEM 4.     CONTROLS AND PROCEDURES.

PART II.    OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS.

ITEM 2.     CHANGES IN SECURITIES AND USE OF PROCEEDS.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.

ITEM 5.     OTHER INFORMATION.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K.

SIGNATURES

                                                                               2

<PAGE>

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

                               NAVARRE CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                JUNE 30, 2003 MARCH 31, 2003
                                                                ----------------------------
                                                                 (UNAUDITED)       (NOTE)
<S>                                                             <C>              <C>
ASSETS

Current assets:
   Cash                                                          $     7,801     $    10,485
   Accounts receivable, less allowance for doubtful accounts
       and sales returns of $5,782 and $4,833 respectively            46,365          54,787
   Inventories                                                        24,066          22,828
   Prepaid expenses and other current assets                           7,225           4,845
                                                                 ---------------------------
Total current assets                                                  85,457          92,945

Property and equipment, net of accumulated depreciation of
   $5,380 and $5,633, respectively                                     3,878           3,585
Other assets:
   Note receivable, related parties                                      749             800
   Goodwill                                                            3,109           3,109
   Other assets                                                        1,824             690
                                                                 ---------------------------
Total assets                                                     $    95,017     $   101,129
                                                                 ===========================

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Note payable                                                        4,276             805
   Accounts payable                                                   57,709          67,093
   Accrued expenses                                                    4,053           4,292
                                                                 ---------------------------
Total current liabilities                                             66,038          72,190

   Note payable, long-term                                                --             268
                                                                 ---------------------------
 Total liabilities                                                    66,038          72,458
Shareholders' equity:
   Common stock, no par value:
      Authorized shares - 100,000,000, issued and outstanding
          shares-21,616,187 and 21,616,187, respectively              91,404          91,404
   Retained deficit                                                  (62,425)        (62,733)
                                                                 ---------------------------
Total shareholders' equity                                            28,979          28,671
                                                                 ---------------------------
Total liabilities and shareholders' equity                       $    95,017     $   101,129
                                                                 ===========================
</TABLE>

Note: The balance sheet at March 31, 2003 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

                                                                               3

<PAGE>

                               NAVARRE CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED JUNE 30,
                                                2003            2002
                                            ---------------------------
<S>                                         <C>             <C>
Net sales                                   $    73,424     $    69,978

Cost of sales                                    63,375          61,926
                                            ---------------------------

Gross profit                                     10,049           8,052

Operating expenses:
   Selling and marketing                          3,151           2,134
   Distribution and warehousing                   1,115           1,148
   General and administration                     5,172           4,403
   Depreciation and amortization                    387             290
                                            ---------------------------
                                                  9,825           7,975
                                            ---------------------------

Income from operations                              224              77

Other expense:
   Interest expense                                 (48)            (32)
   Other income and expense                         132             153
                                            ---------------------------

Net income                                  $       308     $       198
                                            ===========================

Income per common share:
   Basic                                    $       .01     $       .01
                                            ===========================
   Diluted                                  $       .01     $       .01
                                            ===========================
Weighted average common and
    common equivalent shares outstanding
    Basic                                        21,616          21,616
                                            ===========================
    Diluted                                      22,132          21,764
                                            ===========================
</TABLE>

                                                                               4

<PAGE>

                               NAVARRE CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED JUNE 30,
                                                           2003            2002
                                                        ---------------------------
<S>                                                     <C>             <C>
OPERATING ACTIVITIES
Net income                                              $       308     $       198
Adjustments to reconcile net income to net cash
    used in operating activities:
        Depreciation and amortization                           387             290
        Write off of notes receivable                            65              64
        Changes in operating assets and liabilities:
               Accounts receivable                            8,422          (3,921)
               Inventories                                   (1,238)        (10,920)
               Prepaid expenses and other assets             (3,536)         (1,189)
               Accounts payable and accrued expenses         (9,623)          7,145
                                                        ---------------------------
Net cash used in operating activities                        (5,215)         (8,333)

INVESTING ACTIVITIES
Note receivable, related parties                                (14)           (728)
Purchase of equipment and leasehold improvements               (658)           (318)
                                                        ---------------------------
Net cash used in investing activities                          (672)         (1,046)

FINANCING ACTIVITIES
Proceeds from note payable                                    4,276              --
Repayment of note payable                                    (1,073)             --
                                                        ---------------------------
Net cash provided by financing activities                     3,203              --

Net decrease in cash                                         (2,684)         (9,379)
Cash at beginning of period                                  10,485          18,966
                                                        ---------------------------
Cash at end of period                                   $     7,801     $     9,587
</TABLE>

                                                                               5

<PAGE>

                               NAVARRE CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2003

NOTE A - BASIS OF PRESENTATION

The accompanying unaudited financial statements of Navarre Corporation have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
All intercompany accounts and transactions have been eliminated. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Because of the
seasonal nature of our business, the operating results for the three month
period ended June 30, 2003 are not necessarily indicative of the results that
may be expected for the year ending March 31, 2004. For further information,
refer to the financial statements and footnotes thereto included in Navarre
Corporation's Annual Report on Form 10-K for the year ended March 31, 2003.

NOTE B - BUSINESS SEGMENTS

Financial information by reportable business segment is included in the
following summary:

<TABLE>
<CAPTION>
       (In thousands)                  THREE MONTHS ENDED JUNE 30,
                                          2003            2002
                                       ---------------------------
<S>                                    <C>             <C>
NET SALES
Home Entertainment Products            $    73,430     $    69,978
Encore                                       4,652              --
Intercompany elimination                    (4,658)             --
                                       ---------------------------
CONSOLIDATED                           $    73,424     $    69,978
                                       ===========================

OPERATING INCOME (LOSS)
Home Entertainment Products            $       294     $        77
Encore                                         (70)             --
                                       ---------------------------
CONSOLIDATED INCOME FROM OPERATIONS    $       224     $        77
                                       ===========================

Interest expense                               (48)            (32)
Other income                                   132             153
                                       ---------------------------
NET INCOME                             $       308     $       198
                                       ===========================
</TABLE>

                                                                               6

<PAGE>

NOTE C - NET EARNINGS (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED JUNE 30,
               (In thousands, except per share data)                2003            2002
                                                                 --------------------------
            <S>                                                  <C>            <C>
            Numerator:
                 Net income                                      $       308    $       198
            Denominator:
                 Denominator for basic earnings per
                      share--weighted-average shares                  21,616         21,616
                 Dilutive securities: Employee stock options             516            148
                                                                 --------------------------
                 Denominator for diluted earnings per share
                       -adjusted weighted-average shares              22,132         21,764
                                                                 ==========================

            Basic income per share                               $      0.01    $      0.01
                                                                 ==========================
            Dilutive income per share                            $      0.01    $      0.01
                                                                 ==========================
</TABLE>

NOTE D - STOCK-BASED COMPENSATION

In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure.
SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to the fair
value-based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 requires expanded and more prominent disclosure in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method on reported
results.

We have stock-based employee compensation plans comprised primarily of fixed
stock option plans. We have not adopted a method of transition to the fair
value-based method of accounting for stock-based employee compensation provided
under SFAS No. 148, but continue to apply Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and related Interpretations in
accounting for these plans. Accordingly, no compensation expense has been
recognized for stock option plans as the exercise price equals the stock price
on the date of grant. The table below illustrates the effect on net loss and
loss per share as if we had applied the fair value recognition provisions of
SFAS No. 123 to stock-based employee compensation.

<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED JUNE 30,
                                                                        2003             2002
                                                                     ---------------------------
<S>                                                                  <C>             <C>
Net income, as reported                                              $       308     $       198
Add: Stock-based employee compensation expense                                28              --
Deduct: Stock-based compensation expense determined under fair
value method for all awards                                                 (207)           (251)
                                                                     ---------------------------
Net income (loss), pro forma                                         $       129     $       (53)
                                                                     ===========================
Income per share:
   Basic - as reported                                               $      0.01     $      0.01
   Basic - pro forma                                                 $      0.01     $      0.00
   Diluted - as reported                                             $      0.01     $      0.01
   Diluted - pro forma                                               $      0.01     $      0.00
</TABLE>

                                                                               7

<PAGE>

NOTE E - BANK FINANCING AND DEBT

On June 24, 2003, the Company amended its credit agreement with General Electric
Capital Corporation. The credit facility increased from $30 million to $40
million and the terms were extended to 2007. As of June 30, 2003, $4.3 million
was drawn on the credit facility. Under this agreement the Company is required
to meet certain covenants. The Company is in compliance with these covenants as
of June 30, 2003.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

GENERAL

Navarre Corporation, a Minnesota corporation formed in 1983, is a provider of
distribution, fulfillment and marketing services for a broad range of home
entertainment and multimedia products, including personal computer ("PC")
software, audio and video titles, and interactive games. We maintain and
leverage strong relationships on both ends of the content distribution chain,
including relationships with leading national retailers, wholesalers and
rackjobbers, as well as major publishers, music labels and movie studios.

We are recognized as an industry leader in the distribution of consumer PC
software, interactive video games, DVD videos and independent music labels and
artists. Our product line contains a broad assortment of compact discs, PC
software, video games and DVD/VHS videos sold to over 500 customers through over
18,000 locations internationally. Our broad base of customers includes (i)
wholesale clubs, (ii) mass merchandisers, (iii) computer specialty stores, (iv)
music specialty stores, (v) book stores, (vi) office superstores, and (vii)
electronic superstores.

Since our acquisition of Encore Software, Inc., we have been operating in two
business segments: Home Entertainment Products and Encore Software, Inc.
("Encore"). Home Entertainment Products consists of two divisions: Navarre
Distribution Services ("NDS") and Navarre Entertainment Media ("NEM"), while our
Encore subsidiary engages in interactive publishing.

Through NDS, we distribute non-proprietary or non-exclusive entertainment
products including PC software, major label music, DVD video, video games and
accessories. We focus on providing retailers and publishers a wide array of
high-quality services, including vendor-managed inventory, full EDI protocol,
packaging, manufacturing, fulfillment, and marketing, for the broad, efficient
distribution of non-proprietary home entertainment products. We will pursue
substantial growth of NDS in several ways, including (i) by extending the number
of software categories we serve, such as the productivity category, (ii) by
expanding the presence in distribution of home entertainment content formats,
such as DVD and interactive games; and (iii) by leveraging our unique mix of
operational capabilities to deepen relationships with existing retailers and
publisher clients.

Through NEM, we distribute proprietary or exclusive, prerecorded music of
primarily independent labels and their artists CD and DVD audio, and video in
DVD and VHS format, to national and regional music retailers, rackjobbers, and
one-stops throughout the United States and Canada. We offer independent content
creators such as labels, studios and artists, the resources and exposure to
generate high visibility with valuable distribution in a broad array of major
outlets throughout North America. We seek to significantly enhance our
competitive position in independent music label distribution in several ways:
(i) possible acquisition of competing independent distribution companies, (ii)
continuing to seek new proprietary distribution opportunities, (iii) with
increased ownership of content that broadens our reach across all musical
genres, and (iv) exclusive licenses and outright strategic acquisition.

                                                                               8

<PAGE>

We acquired the primary assets of Encore Software, Inc. on July 31, 2002. Encore
is an interactive publisher in the video game and PC CD-ROM markets. Encore has
been a leading publisher in the software market for nearly a decade. They have
built a solid expertise in product development, sales distribution, marketing
and public relations. The assets purchased by us included certain fixed assets,
intellectual property, inventory, receivables, and contract rights related to
Encore's business. The assets are held by our subsidiary, Encore Software, Inc.

FORWARD LOOKING STATEMENTS

The statements in this Management's Discussion and Analysis section that are not
strictly historical are "forward looking" statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 and are intended to be covered by the safe harbors created
by these sections. The forward looking statements are subject to risks and
uncertainties and the actual results that the Company achieves may differ
materially from these forward looking statements due to such risks and
uncertainties, including (i) developments in the retail and consumer markets for
prerecorded music products, video products and computer software products; (ii)
retail consumer buying patterns; (iii) the ability of consumers to download or
acquire products for free on the internet; (iv) new and different competition in
the Company's traditional and new markets; (v) the Company's dependence upon
seasonality in its business; (vi) the Company's ability to attract and retain
large retail customers that account for a significant part of its business;
(vii) the Company's ability to successfully act as distributor to on-line
retailers; (viii) the Company's ability to manage its inventory; (ix) the
Company's dependence upon content providers including recording labels and
artists and software developers; (x) the Company's ability to react to changes
in the distribution of software and prerecorded music, including electronic
distribution; (xi) the Company's dependence upon bank financing to satisfy its
seasonal working capital requirements; (xii) the Company's ability to
successfully defend itself against litigation and (xiii) the Company's
successful integration of Encore Software into the Company's business. A
detailed statement of risks and uncertainties related to the Company is included
in the Section "Forward Looking Statements / Important Factors" in the Company's
Form 10-K for the year ended March 31, 2003.

                                                                               9

<PAGE>

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the percentage of net
sales represented by certain items included in our "Consolidated Statements of
Operations."

<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED JUNE 30,
                                           2003                 2002
                                           ---------------------------
<S>                                        <C>                  <C>
NET SALES:
   Home Entertainment Products:
     Distribution Services                  85.8%                84.8%
     Entertainment Media                    14.2                 15.2
                                           --------------------------
   Home Entertainment Products net sales   100.0                100.0
   Encore                                    6.3                   --
   Intercompany elimination                 (6.3)                  --
                                           --------------------------
   Total net sales                         100.0                100.0
Cost of sales                               86.3                 88.5
                                           --------------------------
Gross profit                                13.7                 11.5

Selling and promotion                        4.3                  3.0
Distribution and warehousing                 1.5                  1.6
General and administration                   7.1                  6.4
Depreciation and amortization                0.5                  0.4
                                           --------------------------
Income from operations                       0.3                  0.1
Interest expense                            (0.1)                (0.0)
Other income and expense                     0.2                  0.2
                                           --------------------------
NET INCOME                                   0.4%                 0.3%
                                           ==========================
</TABLE>

HOME ENTERTAINMENT PRODUCTS

NET SALES

Net sales for the first quarter ended June 30, 2003 increased 4.9% to $73.4
million from $70.0 million in the same period in fiscal 2003. The increase in
net sales was due to increased sales for NDS. Net sales for NDS increased 6.1%
to $63.0 million for the first quarter ended June 30, 2003 from $59.3 million
for the same period in fiscal 2003. The increase was due to the division
maintaining its market share through management of product cycles and pursuit of
adding publisher offerings, as well as researching and addressing new
technologies, such as DVD backup utility software. Net sales for NEM decreased
1.9% to $10.4 million for the first quarter ended June 30, 2003 from $10.6
million for the same period in fiscal 2003. The decrease reflects a shift in
releases in the quarter.

GROSS PROFIT

Gross profit for the first quarter ended June 30, 2003 increased 1.6% to $8.2
million from $8.0 million for the same period in fiscal 2003. As a percent of
net sales, gross profit for the first quarter ended June 30, 2003 decreased to
11.1% from 11.5% for the same period in fiscal 2003. The decrease in gross
profit as a percent of net sales was due to lower margin on NDS and NEM sales of
the most popular and widely distributed music and software products because they
are available in the greatest number of channels through a variety of vendors,
resulting in greater price competition and lower margins for industry
participants, including the Company. Gross profit from NDS net sales for the
first quarter ended June 30, 2003 was $6.7 million or 10.6% as a percent of net
sales compared with $6.4 million or 10.7% as a percent of net sales in the same
period in fiscal 2003. The decrease in gross profit and as a percent of net
sales for NDS for first quarter ended June 30, 2003 was primarily due to changes
in the mix of products, such as business and productivity products that
generally have a lower gross margin. The gross profit may continue to fluctuate
slightly depending upon the make-up of product sales each quarter as the

                                                                              10

<PAGE>

Company continues to expand its market share in business and productivity
software. Gross profit from NEM net sales for the first quarter ended June 30,
2003 was $1.5 million or 14.5% as a percent of net sales compared with $1.7
million or 15.9% as a percent of net sales in the same period in fiscal 2003.
The decrease in gross profit and as a percent of net sales for NEM for the first
quarter ended June 30, 2003 was primarily a result of some lower margin video
business that we signed on to expand our video repertoire.

OPERATING EXPENSES

Total operating expenses for the first quarter ended June 30, 2003 decreased to
$7.9 million from $8.0 million in the same period in fiscal 2003. As a percent
of net sales, total operating expenses for the first quarter ended June 30, 2003
decreased to 10.7% from 11.4% in the same period in fiscal 2003.

Selling and marketing expenses for the first quarter ended June 30, 2003
increased to $2.2 million from $2.1 million for the same period in fiscal 2003.
The increase was due to a higher level of sales. Selling and marketing expenses
as a percent of net sales decreased to 2.9% for the first quarter ended June 30,
2003 from 3.0% for the same period in fiscal 2003. The decrease in selling and
marketing expenses as a percent of net sales was due to the lower costs
associated with improved management of these costs.

Distribution and warehousing expenses for the first quarter ended June 30, 2003
were generally flat at $1.1 million compared to $1.1 million for the same period
in fiscal 2003. As a percent of net sales, distribution and warehousing expense
for the first quarter ended June 30, 2003 decreased to 1.5% from 1.6% for the
same period in fiscal 2003. The decrease in distribution and warehousing expense
as a percent of net sales for the first quarter ended June 30, 2003 was due to
the overall improved management of the warehousing expenses reflecting in part
to efficiencies associated with a higher level of sales.

General and administration expenses for the first quarter ended June 30, 2003
were generally flat at $4.4 million compared to $4.4 million for the same period
in fiscal 2003. As a percent of net sales, general and administration expenses
for the first quarter ended June 30, 2003 decreased to 5.9% from 6.3% for the
same period in fiscal 2003. The decrease in general and administration expenses
as a percent of net sales for the first quarter ended June 30, 2003 was
attributable to continued increased efforts to control expenses.

Depreciation and amortization was $250,000 for the first quarter ended June 2003
compared to $290,000 for the same period in fiscal 2003.

Operating income for Home Entertainment Products was $294,000 for the first
quarter ended June 30, 2003 compared to $77,000 for the same period in fiscal
2003.

ENCORE SOFTWARE, INC.

Encore had net sales of $4.7 million for the first quarter ended June 30, 2003.
Encore had gross profit of $1.9 million for the first quarter ended June 30,
2003. Selling and promotion expense for the first quarter ended June 30, 2003
was $1.0 million, general and administration expense was $812,000 and
depreciation expense was $138,000. Encore had an operating loss of $70,000. $4.7
million of inter-company net sales were eliminated.

                                                                              11

<PAGE>

CONSOLIDATED OTHER INCOME/EXPENSE

Interest expense for the first quarter ended June 30, 2003 was $48,000 compared
to $32,000 for the same period in fiscal 2003. The increase for the first
quarter ended June 30, 2003 resulted from our use of our line of credit.

Other income and expense, which consists principally of interest income, was
$132,000 for the first quarter ended June 30, 2003 compared to $153,000 for the
same period in fiscal 2003. The decrease for the third quarter and nine-month
period resulted from lower interest rates.

Due to the accumulated net operating losses from prior years, we have not
recorded any provision for taxes.

We had net income for the first quarter ended June 30, 2003 of $308,000 compared
to $198,000 for the same period in fiscal 2003.

MARKET RISK

Although we are subject to some interest rate risk, because we currently have
limited borrowings under our bank credit facility, we believe a 10% increase or
reduction in interest rates would not have a material effect on future earnings,
fair values or cash flows.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed our working capital needs through bank borrowings,
sale of equity securities and management of the various components of our
working capital including accounts receivable, inventory and accounts payable.
The level of borrowings has historically fluctuated significantly during the
year. At June 30, 2003, we had net accounts receivable of $46.4 million,
inventory of $24.1 million, accounts payable of $57.7 million and had bank
borrowings of $4.3 million under our $40 million credit facility.

Cash used in operating activities was $5.2 million. Accounts receivable
decreased by $8.4 million, inventories increased by $1.2 million and accounts
payable and accrued expense decreased by $9.6 million. Accounts receivable,
inventory and accounts payable typically fluctuate during the first three
quarters of our fiscal year and decrease after the holiday season.

Investing activities used $672,000 of cash primarily for the purchase of
furniture, equipment and leasehold improvements while financing activities
provided $3.2 million from net proceeds of notes payable. Cash decreased by $2.7
million during the period.

Although we believe we have sufficient cash and working capital to meet our
short-term liquidity and capital requirements, we anticipate we could utilize
our credit facility during the next twelve months to meet seasonal working
capital needs.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information with respect to disclosures about market risk is contained in the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Market Risk" in this Form 10-Q.

                                                                              12

<PAGE>

ITEM 4.     CONTROLS AND PROCEDURES

Our management, including the Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the design and operation of our
disclosure controls and procedures at the end of the period covered by this
quarterly report. Based on their evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that these disclosure controls and
procedures were effective as of June 30, 2003. There were no changes in our
internal controls over financial reporting that occurred during the most recent
fiscal quarter that have materially affected, or are reasonably likely to
affect, the Company's internal controls over financial reporting.

PART II.    OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

In the normal course of our business, we are involved in a number of routine
litigation matters that are incidental to the operation of our business. These
matters generally include collection matters with regard to products distributed
by us and accounts receivable owed to us. We currently believe that the
resolution of any of these pending matters will not have a material adverse
effect on our financial position or results of operation. In addition, we are
subject to the matters listed below.

BOB GRADY AND WILSON MEADOWS v. NAVARRE CORPORATION, ET. AL

On or about January 29, 2001, Bob Grady Music and Wilson Meadows (collectively,
"Plaintiffs") filed this action in the United States District Court for the
Northern District of Georgia, Case No. 01-CV-0252, alleging, among other things,
copyright infringement against the Company and seeking damages in excess of
$150,000 in connection with the Company's distribution of musical albums
pursuant to a written distribution agreement with Fortune Entertainment, Inc.
("Fortune"). On March 13, 2001, the Company answered the Complaint, denying
liability, and asserting affirmative defenses. On March 13, 2001, the Company
filed a Third-Party Complaint against co-defendant Fortune and its owner Bruce
Dugan, seeking indemnity and contribution on the claims made by Bob Grady and
Wilson Meadows. Neither Fortune nor Bruce Dugan has responded to the Third Party
complaint. Discovery is completed, and the parties filed cross-motions for
summary judgment in approximately April 2002.

On March 31, 2003, the District Court granted the Company's motion for summary
judgment, denied Plaintiffs' motion for summary judgment, and entered judgment
dismissing all of Plaintiffs' claims against the Company. The Company moved for
an award of its attorneys' fees on April 14, 2003, and Plaintiffs responded,
opposing the motion, on May 12, 2003. The Company filed a reply on May 29, 2003.
Plaintiffs have filed with the 11th Circuit Court of Appeals a Notice of Appeal
of the District Court's decision, and the parties will submit their briefs per
the schedule issued by the Court.

The Company intends to vigorously defend against Plaintiffs' claims on appeal,
to purse the recovery of its attorneys' fees and costs incurred in the matter,
and to pursue indemnity and contribution from Fortune and Mr. Dugan.

CLOUD TEN PICTURES, INC. v. NAVARRE CORPORATION

On or about April 2, 2003, Cloud Ten Pictures, Inc. ("Plaintiff") commenced this
action in Hennepin County District Court for the State of Minnesota, by serving
the Company with a Summons and Complaint. Plaintiff alleges, among other things,
accounting, breach of contract, misrepresentation and negligent
misrepresentation, and seeks unspecified damages.

                                                                              13

<PAGE>

The Company responded to the Complaint and asserted its Counterclaim on May 2,
2003, alleging accounting, breach of contract, misrepresentation and negligent
misrepresentation, and seeking damages of at least $663,826.54. The Company also
served written discovery on Plaintiff and is awaiting complete responses.
Plaintiff has served written discovery on the Company, and the Company is
prepared to respond.

The Company intends to vigorously pursue its claims against Plaintiff and to
vigorously defend against the claims asserted by Plaintiff.

SIRIUS PUBLISHING, INC. vs. NAVARRE CORPORATION

On April 30, 2001, Sirius Publishing, Inc. ("Sirius") commenced this action in
the Maricopa County Arizona Superior Court alleging that the Company had
breached its agreements with Sirius by failing to pay Sirius for computer
software which was sold by Sirius to the Company on a consignment basis. Sirius
did not specify its damages in its Complaint. Through discovery, Sirius has now
stated that its damages claim is for at least $270,000.

On May 30, 2001, the Company removed the action to the United States District
Court for the District of Arizona, Case No. CV01-952PHXSMM, served and filed its
Answer and Counterclaim and filed a motion to transfer venue to the United
States District Court for the District of Minnesota, which motion was denied. In
its Answer, the Company denied all liability on Sirius' claim. For its
Counterclaim, the Company has asserted that Sirius has breached the parties'
ongoing agreements by refusing to accept and pay the Company for returned
product. The Company is seeking damages on its Counterclaim against Sirius in
excess of $545,000.

On January 29, 2002, the United States District Court for the District of
Arizona issued an Order denying the Company's motion to transfer venue.
Discovery has been completed. A Final Pretrial Conference was scheduled for
August 5, 2003, but was cancelled by the court. Sirius has filed a motion for
Summary Judgment on its claims, and the Company will file and serve a response
and cross motion for Summary Judgment on August 18, 2003. No hearing date has
been set, but oral argument has been requested. No trial date has been
established.

The Company intends to vigorously defend against Sirius' claim and pursue its
counterclaim.

NAVARRE CORPORATION v. BROOKLYN MUSIC LTD., ET. AL

The Company commenced this action against Brooklyn Music Limited, Frank Babar,
and Joe Natoli. The Complaint was filed with the Hennepin County District Court
for the District of Minnesota on July 26, 2002, Brooklyn Music Ltd. was served
with the Company's Complaint on July 31, 2002, Frank Babar was served with the
Company's Complaint on July 31, 2002, and Joe Natoli was served with the
Company's Complaint on October 9, 2002. The Company alleges, among other things,
that the Defendants breached distribution and loan contracts with the Company,
and the Company seeks damages of at least $295,000.

As of November 15, 2002, all Defendants had answered the Company's Complaint and
asserted counterclaims. Defendants allege eleven separate counterclaims based on
breach of contract, gross negligence, willful misconduct, and intentional bad
faith, and seek damages which are difficult to decipher but appear to
approximate $3,000,000, as well as nullification of the personal guaranties of
the individual defendants. The Court issued an Amended Scheduling Order
requiring that depositions be completed by June 1, 2003, that all dispositive
motions be completed by September 2, 2003, and that mediation shall be completed
by October 15, 2003. The Company has filed and served a motion for Summary
Judgment on all issues, which is set for hearing on August 29, 2003. Defendants
have not yet responded to the motion, as their response is due on or about
August 20, 2003. A mediation has been scheduled for August 28, 2003. The Court
also scheduled a Pretrial Conference for November 5, 2003, and the case is set
for trial on January 5, 2004.

                                                                              14

<PAGE>

The Company intends to vigorously pursue its claims against Defendants, and to
vigorously defend against the claims asserted by Defendants.

AMERICAN GRAMAPHONE LLC

American Gramaphone LLC has indicated that if the dispute described below cannot
be resolved, it intends to commence and arbitration pursuant to a written
agreement between it and the Company.

The Company distributed American Gramaphone LLC products pursuant to a written
distribution agreement which has terminated. Since termination, the Company and
American Gramaphone LLC have been attempting to reconcile the various account
balances between the parties. American Gramaphone LLC has notified the Company
that it believes sums in excess of $250,000 are owed to it. The Company disputes
the claim, and the parties continue to attempt to resolve the dispute.

The Company intends to continue to attempt to reconcile the accounts to resolve
the matter, and if an arbitration is initiated by American Gramaphone LLC, to
vigorously defend against the claims asserted by American Gramaphone LLC.

ITEM 2.     CHANGES IN SECURITIES AND USE OF PROCEEDS

            None

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

            None

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

            None

ITEM 5.     OTHER INFORMATION

            None

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

(a)      The following exhibits are included herein:

         10.9.1   Amendment No. 1 to Lease Agreement between us and Cambridge
                  Apartments, Inc., dated April 1, 1998.

         10.9.2   Amendment No. 2 to Lease Agreement between us and Cambridge
                  Apartments, Inc., dated July 14, 2003.

         10.9.3   Agreement of Reciprocal Easements, Covenants, Conditions and
                  Restrictions, dated June 16, 2003.

                                                                              15

<PAGE>

         31 (a)   Certification of the Chief Executive Officer pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14
                  and 15d-14 of the Exchange Act).

         31 (b)   Certification of the Chief Financial Officer pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14
                  and 15d-14 of the Exchange Act).

         32 (a)   Certifications of the Chief Executive Officer pursuant
                  Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
                  Section 1350).

         32 (b)   Certifications of the Chief Financial Officer pursuant
                  Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
                  Section 1350).

(b)      Reports on Form 8-K

On July 31, 2003, the Company filed a Current Report on Form 8-K with the
Securities and Exchange Commission, reporting our earnings for the first quarter
ended June 30, 2003.

                                                                              16

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                                    NAVARRE CORPORATION
                                                    (Registrant)

Date: August 8, 2003                                /s/ Eric H. Paulson
                                                    ------------------------
                                                    Eric H. Paulson
                                                    Chairman of the Board,
                                                    President and
                                                    Chief Executive Officer

Date: August 8, 2003                                /s/ James Gilbertson
                                                    ------------------------
                                                    James Gilbertson
                                                    Vice President and
                                                    Chief Financial Officer

                                                                              17