##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 for the quarterly period ended December 31, 2009
 or
 o
    
    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
  Minnesota
    
    41-1704319(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employer
Identification No.)
 7400 49th Avenue North, New Hope, MN 55428
  (763) 535-8333
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
  Class
    
    Outstanding at February 5, 2010Common Stock, No Par Value
    
    36,366,668 shares




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##### 



NAVARRE CORPORATION
 Index
 PagePART I. FINANCIAL INFORMATION
    
    
    3Item 1. Consolidated Financial Statements. (Unaudited)
    
    
    3Consolidated Balance Sheets  December 31, 2009 and March 31, 2009 (Audited)
    
    
    3Consolidated Statements of Operations  Three and Nine Months ended December 31, 2009 and 2008
    
    
    4Consolidated Statements of Cash Flows  Nine Months ended December 31, 2009 and 2008
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    35PART II. OTHER INFORMATION
    
    
    36Item 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 3. Defaults Upon Senior Securities
    
    
    36Item 4. Submission of Matters to a Vote of Security Holders
    
    
    36Item 5. Other Information
    
    
    36Item 6. Exhibits
    
    
    36SIGNATURES
    
    
    37EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1.
    
    Consolidated Financial Statements.
 NAVARRE CORPORATION
 
 Consolidated Balance Sheets
(In thousands, except share amounts)
 December 31,
    
    
    March 31,2009
    
    
    2009(Unaudited)
    
    
    (Note)Assets:Current assets:Marketable securities
    
    $
    1,031
    
    
    $
    1,024Accounts receivable, less allowances of $13,791 and $19,010, respectively
    
    
    62,367
    
    
    
    72,817Inventories
    
    
    27,030
    
    
    
    26,732Prepaid expenses and other current assets
    
    
    13,774
    
    
    
    11,090Income tax receivable
    
    
    1,332
    
    
    
    4,866Deferred tax assets  current, net
    
    
    2,688
    
    
    
    6,219Total current assets
    
    
    108,222
    
    
    
    122,748Property and equipment, net of accumulated depreciation of $20,134 and $16,704, respectively
    
    
    13,826
    
    
    
    15,957Software development costs, net of amortization of $108 and zero, respectively
    
    
    1,847
    
    
    
    677Other assets:Intangible assets, net of amortization of $26,810 and $25,364, respectively
    
    
    1,952
    
    
    
    3,406License fees, net of amortization of $27,206 and $21,570, respectively
    
    
    16,673
    
    
    
    17,728Production costs, net of amortization of $15,431 and $12,223, respectively
    
    
    9,915
    
    
    
    8,408Deferred tax assets  non-current, net
    
    
    13,362
    
    
    
    10,299Other assets
    
    
    4,714
    
    
    
    3,946Total assets
    
    $
    170,511
    
    
    $
    183,169Liabilities and shareholders equity:Current liabilities:Note payable  line of credit
    
    $
    25,046
    
    
    $
    24,133Capital lease obligation  short term
    
    
    69
    
    
    
    90Accounts payable
    
    
    73,468
    
    
    
    106,708Checks written in excess of cash balance
    
    
    1,606
    
    
    
    297Deferred compensation
    
    
    1,543
    
    
    
    2,149Accrued expenses
    
    
    15,951
    
    
    
    11,504Total current liabilities
    
    
    117,683
    
    
    
    144,881Long-term liabilities:Capital lease obligation  long-term
    
    
    95
    
    
    
    115Income taxes payable
    
    
    1,386
    
    
    
    1,166Total liabilities
    
    
    119,164
    
    
    
    146,162Commitments and contingencies (Note 19)Shareholders equity:Common stock, no par value:Authorized shares  100,000,000; issued and outstanding shares  36,366,668 at
December 31, 2009 and 36,260,116 at March 31, 2009
    
    
    161,793
    
    
    
    161,134Accumulated deficit
    
    
    (110,446
    )
    
    
    (124,126
    )Accumulated other comprehensive loss
    
    
    
    
    
    
    (1
    )Total shareholders equity
    
    
    51,347
    
    
    
    37,007Total liabilities and shareholders equity
    
    $
    170,511
    
    
    $
    183,169
 
 Note:

    The balance sheet at March 31, 2009 has been derived from the audited consolidated
financial statements at that date but does not include all of the information and footnotes
required by accounting principles generally accepted in the United States of America for complete
consolidated financial statements. See accompanying notes to consolidated financial statements.
 3




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##### Table of Contents



NAVARRE CORPORATION
 
 Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    133,298
    
    
    $
    171,580
    
    
    $
    390,015
    
    
    $
    483,901Cost of sales (exclusive of depreciation and amortization)
    
    
    111,249
    
    
    
    172,734
    
    
    
    323,535
    
    
    
    438,699Gross profit (loss)
    
    
    22,049
    
    
    
    (1,154
    )
    
    
    66,480
    
    
    
    45,202Operating expenses:Selling and marketing
    
    
    6,079
    
    
    
    7,536
    
    
    
    16,924
    
    
    
    20,457Distribution and warehousing
    
    
    2,544
    
    
    
    3,538
    
    
    
    7,055
    
    
    
    9,468General and administrative
    
    
    7,242
    
    
    
    9,198
    
    
    
    22,519
    
    
    
    25,832Bad debt expense
    
    
    165
    
    
    
    
    
    
    
    257
    
    
    
    200Depreciation and amortization
    
    
    1,494
    
    
    
    4,330
    
    
    
    4,877
    
    
    
    9,027Goodwill and intangible impairment
    
    
    
    
    
    
    6,209
    
    
    
    
    
    
    
    79,621Total operating expenses
    
    
    17,524
    
    
    
    30,811
    
    
    
    51,632
    
    
    
    144,605Income (loss) from operations
    
    
    4,525
    
    
    
    (31,965
    )
    
    
    14,848
    
    
    
    (99,403
    )Other income (expense):Interest expense
    
    
    (1,007
    )
    
    
    (1,427
    )
    
    
    (2,327
    )
    
    
    (3,875
    )Interest income
    
    
    7
    
    
    
    20
    
    
    
    14
    
    
    
    49Other income (expense), net
    
    
    70
    
    
    
    (766
    )
    
    
    885
    
    
    
    (1,087
    )Net income (loss) before income tax
    
    
    3,595
    
    
    
    (34,138
    )
    
    
    13,420
    
    
    
    (104,316
    )Income tax benefit (expense)
    
    
    3,644
    
    
    
    (13,586
    )
    
    
    260
    
    
    
    12,711Net income (loss)
    
    $
    7,239
    
    
    $
    (47,724
    )
    
    $
    13,680
    
    
    $
    (91,605
    )Earnings (loss) per common share:Basic
    
    $
    0.20
    
    
    $
    (1.32
    )
    
    $
    0.38
    
    
    $
    (2.53
    )Diluted
    
    $
    0.20
    
    
    $
    (1.32
    )
    
    $
    0.37
    
    
    $
    (2.53
    )Weighted average shares outstanding:Basic
    
    
    36,301
    
    
    
    36,216
    
    
    
    36,258
    
    
    
    36,198Diluted
    
    
    36,744
    
    
    
    36,216
    
    
    
    36,617
    
    
    
    36,198
 See accompanying notes to consolidated financial statements.
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NAVARRE CORPORATION
 
 Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 Nine Months EndedDecember 31,2009
    
    
    2008Operating activities:Net income (loss)
    
    $
    13,680
    
    
    $
    (91,605
    )Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    4,877
    
    
    
    9,027Amortization of debt acquisition costs
    
    
    352
    
    
    
    142Write-off of debt acquisition costs
    
    
    289
    
    
    
    950Goodwill and intangible impairment
    
    
    
    
    
    
    79,621Amortization of license fees
    
    
    5,636
    
    
    
    10,021Amortization of production costs
    
    
    3,208
    
    
    
    4,057Share-based compensation expense
    
    
    781
    
    
    
    787Deferred income taxes
    
    
    468
    
    
    
    (8,462
    )Deferred compensation expense
    
    
    (606
    )
    
    
    (241
    )Other
    
    
    295
    
    
    
    24Changes in operating assets and liabilities:Accounts receivable, net
    
    
    10,450
    
    
    
    (12,343
    )Inventories
    
    
    (298
    )
    
    
    (1,948
    )Prepaid expenses
    
    
    (2,684
    )
    
    
    953Income taxes receivable
    
    
    3,534
    
    
    
    (4,236
    )Other assets
    
    
    181
    
    
    
    689Production costs
    
    
    (4,715
    )
    
    
    (5,414
    )License fees
    
    
    (4,581
    )
    
    
    (8,547
    )Accounts payable
    
    
    (33,240
    )
    
    
    16,896Income taxes payable
    
    
    220
    
    
    
    250Accrued expenses
    
    
    4,320
    
    
    
    553Net cash provided by (used in) operating activities
    
    
    2,167
    
    
    
    (8,826
    )Investing activities:Purchases of property and equipment
    
    
    (1,299
    )
    
    
    (3,325
    )Purchases of intangible assets
    
    
    (12
    )
    
    
    (666
    )Software development costs incurred
    
    
    (1,278
    )
    
    
    (400
    )Proceeds from sale of intangible assets
    
    
    20
    
    
    
    Proceeds from sale of assets held for sale
    
    
    
    
    
    
    1,353Sale of marketable equity securities
    
    
    
    
    
    
    1,654Net cash used in investing activities
    
    
    (2,569
    )
    
    
    (1,384
    )Financing activities:Proceeds from note payable, line of credit
    
    
    158,851
    
    
    
    167,410Payments on note payable, line of credit
    
    
    (157,938
    )
    
    
    (150,035
    )Repayments of note payable
    
    
    
    
    
    
    (9,744
    )Payment of deferred compensation
    
    
    
    
    
    
    (1,654
    )Checks written in excess of cash
    
    
    1,309
    
    
    
    Debt acquisition costs
    
    
    (1,784
    )
    
    
    (200
    )Other
    
    
    (36
    )
    
    
    120Net cash provided by financing activities
    
    
    402
    
    
    
    5,897Net decrease in cash
    
    
    
    
    
    
    (4,313
    )Cash at beginning of period
    
    
    
    
    
    
    4,445Cash at end of period
    
    $
    
    
    
    $
    132Supplemental cash flow information:Cash paid for (received from):Interest
    
    $
    1,514
    
    
    $
    2,985Income taxes, net of refunds
    
    
    (4,440
    )
    
    
    (212
    )Supplemental schedule of non-cash investing and financing activities:Accrual of debt acquisition costs
    
    
    
    
    
    
    650Shares received for payment of tax withholding obligations
    
    $
    127
    
    
    $
    15
 See accompanying notes to consolidated financial statements.
 5




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##### Table of Contents



NAVARRE CORPORATION
 
 Notes to Consolidated Financial Statements
 (Unaudited)
 Note 1 Organization and Basis of Presentation
     Basis of Consolidation
  Revenue Recognition
    Entertainment-Films
 6




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Recently Issued Accounting Pronouncements
 Subsequent Events
 Transfers and Servicing
 Consolidation
 Generally Accepted Accounting Principles (GAAP)
 Note 2 Marketable Securities
 Fair Value Measurements and Disclosures
 
    
    Level 1  quoted prices in active markets for identical assets and liabilities.
    
    Level 2  observable inputs other than quoted prices in active markets for identical
assets and liabilities.
    
    Level 3  unobservable inputs in which there is little or no market data available, which
require the reporting entity to develop its own assumptions.
  7




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As of December 31, 2009Gross
    
    
    GrossEstimated fair
    
    
    unrealized
    
    
    unrealizedvalue
    
    
    holding gains
    
    
    holding lossesAvailable-for-sale:Corporate bonds
    
    $
    204
    
    
    $
    
    
    
    $
    Money market fund
    
    
    827
    
    
    
    
    
    
    
    $
    1,031
    
    
    $
    
    
    
    $
    
 As of March 31, 2009Gross
    
    
    GrossEstimated fair
    
    
    unrealized
    
    
    unrealizedvalue
    
    
    holding gains
    
    
    holding lossesAvailable-for-sale:Government agency and corporate bonds
    
    $
    712
    
    
    $
    1
    
    
    $
    2Money market fund
    
    
    312
    
    
    
    
    
    
    
    $
    1,024
    
    
    $
    1
    
    
    $
    2
  Note 3  Share-Based Compensation
  Stock Options
  WeightedaverageNumber of
    
    
    exerciseoptions
    
    
    priceOptions outstanding, beginning of period:
    
    
    3,165,528
    
    
    $
    5.74Granted
    
    
    848,500
    
    
    
    1.89Exercised
    
    
    (7,501
    )
    
    
    0.69Canceled
    
    
    (294,295
    )
    
    
    6.19Options outstanding, end of period
    
    
    3,712,232
    
    
    $
    4.84Options exercisable, end of period
    
    
    2,306,246
    
    
    $
    6.80Shares available for future grant, end of period
    
    
    97,580
 8




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##### Table of Contents



Restricted Stock
   Weightedaveragegrant dateShares
    
    
    fair valueUnvested, beginning of period:
    
    
    445,155
    
    
    $
    1.19Granted
    
    
    242,750
    
    
    
    2.10Vested
    
    
    (173,836
    )
    
    
    1.61Forfeited
    
    
    (5,583
    )
    
    
    1.10Unvested, end of period
    
    
    508,486
    
    
    $
    1.48
    9




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##### Table of Contents



Restricted Stock Units  Performance Based
  Share-Based Compensation Valuation and Expense Information
  Three Months Ended
    
    
    Nine Months EndedDecember 30,
    
    
    December 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Expected life (in years)
    
    
    5.0
    
    
    
    5.0
    
    
    
    5.0
    
    
    
    5.0Expected volatility
    
    
    75
    %
    
    
    66
    %
    
    
    75
    %
    
    
    66
    %Risk-free interest rate
    
    
    2.33
    %
    
    
    2.51
    %
    
    
    1.65-2.93
    %
    
    
    2.51-2.87
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
   Note 4  Earnings (Loss) Per Share
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Net income (loss)
    
    $
    7,239
    
    
    $
    (47,724
    )
    
    $
    13,680
    
    
    $
    (91,605
    )Denominator:Denominator
for basic earnings (loss) per shareweighted-average shares
    
    
    36,301
    
    
    
    36,216
    
    
    
    36,258
    
    
    
    36,198Dilutive securities: Employee stock options and warrants
    
    
    443
    
    
    
    
    
    
    
    359
    
    
    
    Denominator for diluted earnings (loss) per shareadjusted weighted-average shares
    
    
    36,744
    
    
    
    36,216
    
    
    
    36,617
    
    
    
    36,198Net earnings (loss) per share:Basic earnings (loss) per share
    
    $
    0.20
    
    
    $
    (1.32
    )
    
    $
    0.38
    
    
    $
    (2.53
    )Diluted earnings (loss) per share
    
    $
    0.20
    
    
    $
    (1.32
    )
    
    $
    0.37
    
    
    $
    (2.53
    )
  10




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Note 5  Shareholders Equity
  Note 6  Accounts Receivable
  December 31,
    
    
    March 31,2009
    
    
    2009Trade receivables
    
    $
    71,787
    
    
    $
    86,345Vendor receivables
    
    
    2,086
    
    
    
    2,894Other receivables
    
    
    2,285
    
    
    
    2,58876,158
    
    
    
    91,827Less: allowance for doubtful accounts and sales discounts
    
    
    5,003
    
    
    
    7,043Less: allowance for sales returns, net margin impact
    
    
    8,788
    
    
    
    11,967Total
    
    $
    62,367
    
    
    $
    72,817
 Note 7  Inventories
  December 31,
    
    
    March 31,2009
    
    
    2009Finished products
    
    $
    21,552
    
    
    $
    20,437Consigned inventory
    
    
    1,895
    
    
    
    1,868Raw materials
    
    
    3,583
    
    
    
    4,427Total
    
    $
    27,030
    
    
    $
    26,732
  Note 8  Prepaid Expenses and Other Current Assets
  December 31,
    
    
    March 31,2009
    
    
    2009Prepaid royalties
    
    $
    12,448
    
    
    $
    9,826Other
    
    
    1,326
    
    
    
    1,264Total
    
    $
    13,774
    
    
    $
    11,090
 11




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##### Table of Contents



Note 9  Property and Equipment
  December 31,
    
    
    March 31,2009
    
    
    2009Furniture and fixtures
    
    $
    1,370
    
    
    $
    1,306Computer and office equipment
    
    
    18,261
    
    
    
    17,782Warehouse equipment
    
    
    10,116
    
    
    
    10,116Production equipment
    
    
    1,411
    
    
    
    1,296Leasehold improvements
    
    
    2,087
    
    
    
    2,081Construction in progress
    
    
    715
    
    
    
    80Total
    
    
    33,960
    
    
    
    32,661Less: accumulated depreciation and amortization
    
    
    20,134
    
    
    
    16,704Net property and equipment
    
    $
    13,826
    
    
    $
    15,957
 Note 10  Capitalized Software Development Costs
 Software
 Note 11  Goodwill and Intangible Assets
 Goodwill
  Intangibles  Goodwill and Other
 12




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Intangible assets
  .
  As of December 31, 2009Gross carrying
    
    
    Accumulatedamount
    
    
    amortization
    
    
    NetMasters
    
    $
    8,078
    
    
    $
    8,078
    
    
    $
    License relationships
    
    
    20,078
    
    
    
    18,696
    
    
    
    1,382Domain name
    
    
    70
    
    
    
    36
    
    
    
    34Trademarks (not amortized)
    
    
    536
    
    
    
    
    
    
    
    536$
    28,762
    
    
    $
    26,810
    
    
    $
    1,952
 As of March 31, 2009Gross carrying
    
    
    Accumulatedamount
    
    
    amortization
    
    
    NetMasters
    
    $
    8,086
    
    
    $
    7,986
    
    
    $
    100License relationships
    
    
    20,078
    
    
    
    17,350
    
    
    
    2,728Domain name
    
    
    70
    
    
    
    28
    
    
    
    42Trademarks (not amortized)
    
    
    536
    
    
    
    
    
    
    
    536$
    28,770
    
    
    $
    25,364
    
    
    $
    3,406
  13




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##### Table of Contents



Remainder of fiscal 2010
    
    $
    4512011
    
    
    4252012
    
    
    2372013
    
    
    303Thereafter
    
    
    
 Debt issuance costs
  Note 12  Impairments and Other Charges
  
    
    BCI would no longer be involved in licensing operations related to
budget DVD video and the remaining BCI content would be transferred to
the distribution segment. For the three months ended December 31,
2008, the Company recorded $18.6 million in impairment and other
charges related to the restructuring of BCI, which included
$7.3 million for inventory, $7.1 million for prepaid royalties,
$2.0 million for masters, $2.0 million for accounts receivable
reserves and $181,000 for goodwill.
    
    FUNimation would no longer be involved in licensing operations related
to DVD video of childrens properties. For the three months ended
December 31, 2008, the Company recorded $14.8 million in impairment
and other charges related to the restructuring of FUNimation, which
included $8.2 million for license fees and production costs,
$5.0 million for goodwill, $1.0 million for trademarks and $555,000
for inventory.
  License Fees
    
    
    
    
    
    
    Masters,
    
    
    
    
    
    
    Accountsand Production
    
    
    Prepaid
    
    
    Goodwill and
    
    
    
    
    
    
    ReceivableCosts -
    
    
    Royalties -
    
    
    Trademarks-
    
    
    Inventory-
    
    
    Reserves-
    
    
    Severance-
    
    
    Severance-Publishing
    
    
    Publishing
    
    
    Publishing
    
    
    Publishing
    
    
    Publishing
    
    
    Publishing
    
    
    Distribution
    
    
    TotalSales
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,057
    
    
    $
    
    
    
    $
    
    
    
    $
    1,057Cost of sales
    
    
    8,239
    
    
    
    7,076
    
    
    
    
    
    
    
    7,855
    
    
    
    985
    
    
    
    52
    
    
    
    
    
    
    
    24,207Selling and marketing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159
    
    
    
    13
    
    
    
    172Distribution and
warehousing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74
    
    
    
    74General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    330
    
    
    
    504
    
    
    
    834Depreciation and
amortization
    
    
    
    
    
    
    
    
    
    
    2,029
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,029Goodwill and intangible
impairment
    
    
    
    
    
    
    
    
    
    
    6,209
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,209Total
    
    $
    8,239
    
    
    $
    7,076
    
    
    $
    8,238
    
    
    $
    7,855
    
    
    $
    2,042
    
    
    $
    541
    
    
    $
    591
    
    
    $
    34,582
 14




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##### Table of Contents



Note 13  License Fees
  December 31,
    
    
    March 31,2009
    
    
    2009License fees
    
    $
    43,879
    
    
    $
    39,298Less: accumulated amortization
    
    
    27,206
    
    
    
    21,570Total
    
    $
    16,673
    
    
    $
    17,728
     Note 14  Production Costs
  December 31,
    
    
    March 31,2009
    
    
    2009Production costs
    
    $
    25,346
    
    
    $
    20,631Less: accumulated amortization
    
    
    15,431
    
    
    
    12,223Total
    
    $
    9,915
    
    
    $
    8,408
    15




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##### Table of Contents



Note 15  Assets Held for Sale
  Note 16  Accrued Expenses
  December 31,
    
    
    March 31,2009
    
    
    2009Compensation and benefits
    
    $
    6,668
    
    
    $
    3,263Royalties
    
    
    4,017
    
    
    
    3,056Customer rebates
    
    
    1,634
    
    
    
    1,264Rent
    
    
    1,208
    
    
    
    1,249Deferred revenue
    
    
    278
    
    
    
    303Interest
    
    
    210
    
    
    
    39Other
    
    
    1,936
    
    
    
    2,330Total
    
    $
    15,951
    
    
    $
    11,504
 Note 17  Bank Financing and Debt
    16




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##### Table of Contents



Letter of Credit
  Note 18  Private Placement Warrants
  Note 19  Income Taxes
 Income Taxes
     17




---



##### Table of Contents



Note 20  Commitments and Contingencies
 Leases
   Remainder of fiscal 2010
    
    $
    7312011
    
    
    2,5432012
    
    
    2,5182013
    
    
    2,5162014
    
    
    2,502Thereafter
    
    
    10,198$
    21,008
 Litigation and Proceedings
  SEC Investigation
  Note 21  Capital Leases
  December 31,
    
    
    March 31,2009
    
    
    2009Computer and office equipment
    
    $
    343
    
    
    $
    314Less: accumulated amortization
    
    
    193
    
    
    
    113Net property and equipment
    
    $
    150
    
    
    $
    201
 18




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##### Table of Contents



Minimum LeaseCommitmentsRemainder of fiscal 2010
    
    $
    282011
    
    
    662012
    
    
    582013
    
    
    28Total minimum lease payments
    
    $
    180Less: amounts representing interest at rates ranging from 6.9% to 31.6%
    
    
    16Present value of minimum capital lease payments, reflected in the
balance sheet as current and noncurrent capital lease obligations of
$69 and $95, respectively
    
    $
    164
 Note 22  Related Party Transactions
 Employment/Severance Agreements
     Employment Agreement  FUNimation
  19




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##### Table of Contents



Note 23  Business Segments
   Publishing
    
    
    Distribution
    
    
    Eliminations
    
    
    ConsolidatedThree months ended December 31, 2009Net sales
    
    $
    20,893
    
    
    $
    124,786
    
    
    $
    (12,381
    )
    
    $
    133,298Income from operations
    
    
    2,935
    
    
    
    1,590
    
    
    
    
    
    
    
    4,525Net income, before income tax
    
    
    2,248
    
    
    
    1,347
    
    
    
    
    
    
    
    3,595Depreciation and amortization expense
    
    
    633
    
    
    
    861
    
    
    
    
    
    
    
    1,494Capital expenditures
    
    
    502
    
    
    
    350
    
    
    
    
    
    
    
    852Total assets
    
    
    60,006
    
    
    
    117,181
    
    
    
    (6,676
    )
    
    
    170,511
 Publishing
    
    
    Distribution
    
    
    Eliminations
    
    
    ConsolidatedThree months ended December 31, 2008Net sales
    
    $
    24,567
    
    
    $
    162,904
    
    
    $
    (15,891
    )
    
    $
    171,580Loss from operations *
    
    
    (30,940
    )
    
    
    (1,025
    )
    
    
    
    
    
    
    (31,965
    )Net loss, before income tax *
    
    
    (31,942
    )
    
    
    (2,196
    )
    
    
    
    
    
    
    (34,138
    )Depreciation and amortization expense *
    
    
    3,253
    
    
    
    1,077
    
    
    
    
    
    
    
    4,330Capital expenditures
    
    
    63
    
    
    
    242
    
    
    
    
    
    
    
    305Total assets *
    
    
    60,604
    
    
    
    152,295
    
    
    
    821
    
    
    
    213,720
 Publishing
    
    
    Distribution
    
    
    Eliminations
    
    
    ConsolidatedNine months ended December 31, 2009Net sales
    
    $
    67,189
    
    
    $
    357,518
    
    
    $
    (34,692
    )
    
    $
    390,015Income from operations
    
    
    11,620
    
    
    
    3,228
    
    
    
    
    
    
    
    14,848Net income, before income tax
    
    
    9,757
    
    
    
    3,663
    
    
    
    
    
    
    
    13,420Depreciation and amortization expense
    
    
    1,982
    
    
    
    2,895
    
    
    
    
    
    
    
    4,877Capital expenditures
    
    
    638
    
    
    
    661
    
    
    
    
    
    
    
    1,299Total assets
    
    
    60,006
    
    
    
    117,181
    
    
    
    (6,676
    )
    
    
    170,511
 Publishing
    
    
    Distribution
    
    
    Eliminations
    
    
    ConsolidatedNine months ended December 31, 2008Net sales
    
    $
    80,779
    
    
    $
    454,457
    
    
    $
    (51,335
    )
    
    $
    483,901Loss from operations *
    
    
    (97,801
    )
    
    
    (1,602
    )
    
    
    
    
    
    
    (99,403
    )Net loss, before income tax *
    
    
    (100,915
    )
    
    
    (3,401
    )
    
    
    
    
    
    
    (104,316
    )Depreciation and amortization expense *
    
    
    6,038
    
    
    
    2,989
    
    
    
    
    
    
    
    9,027Capital expenditures
    
    
    454
    
    
    
    2,871
    
    
    
    
    
    
    
    3,325Total assets *
    
    
    60,604
    
    
    
    152,295
    
    
    
    821
    
    
    
    213,720
 
 *
    
    See Note 12 for discussion of impairment and other charges recorded during the three and nine
months ended December 31, 2008. Note 24  Subsequent Events
  20




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Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations.
 Overview
 
  anime
  Executive Summary
    
    
    BCI would no longer be involved in licensing operations
related to budget DVD video and the remaining BCI content
would be transferred to the distribution segment. For the
three and nine months ended December 31, 2008, we recorded
impairment and other charges of $18.6 million in
connection with these restructuring activities.
    
    FUNimation would no longer be involved in licensing
operations related to DVD video of childrens properties.
For the three and nine months ended December 31, 2008, in
connection with the restructuring activities, we recorded
$8.8 million of impairment charges due to inventory,
production costs and license advances related to these
childrens properties.
  21




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##### Table of Contents



Summary of Results of Operations for the Three and Nine Months
   
    
    impairment and other charges of $16.4 million recorded in
fiscal 2009 related to accounts receivable reserves,
inventory and prepaid royalties associated with the BCI
restructuring;
    
    impairment and other charges of $8.8 million recorded in
fiscal 2009 related to license advances, production costs
and inventory associated with the FUNimation
restructuring; offset by
    
    decreased sales volume in fiscal 2010.
   22




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##### Table of Contents




    
    impairment and other charges of $16.4 million recorded in
fiscal 2009 related to accounts receivable reserves,
inventory and prepaid royalties associated with the BCI
restructuring;
    
    impairment and other charges of $8.8 million recorded in
fiscal 2009 related to license advances, production costs
and inventory associated with the FUNimation
restructuring; offset by
    
    decreased sales volume in fiscal 2010.
    Working Capital and Debt
   23




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##### Table of Contents



Forward-Looking Statements / Risk Factors
   anime
 24




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##### Table of Contents



Critical Accounting Policies
 Managements Discussion and
Analysis of Financial Condition and Results of Operations
 Reconciliation of GAAP Net Sales to Net Sales Before Inter-Company Eliminations
   Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,(Unaudited)
    
    
    (Unaudited)2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales:Publishing
    
    $
    20,893
    
    
    $
    24,567
    
    
    $
    67,189
    
    
    $
    80,779Distribution
    
    
    124,786
    
    
    
    162,904
    
    
    
    357,518
    
    
    
    454,457Net sales before inter-company eliminations
    
    
    145,679
    
    
    
    187,471
    
    
    
    424,707
    
    
    
    535,236Inter-company sales
    
    
    (12,381
    )
    
    
    (15,891
    )
    
    
    (34,692
    )
    
    
    (51,335
    )Net sales as reported
    
    $
    133,298
    
    
    $
    171,580
    
    
    $
    390,015
    
    
    $
    483,901
 25




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##### Table of Contents



Results of Operations
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,(Unaudited)
    
    
    (Unaudited)2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales:Publishing
    
    
    15.7
    %
    
    
    14.3
    %
    
    
    17.2
    %
    
    
    16.7
    %Distribution
    
    
    93.6
    
    
    
    95.0
    
    
    
    91.7
    
    
    
    93.9Inter-company sales
    
    
    (9.3
    )
    
    
    (9.3
    )
    
    
    (8.9
    )
    
    
    (10.6
    )Total net sales
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of sales, exclusive of amortization and depreciation
    
    
    83.5
    
    
    
    100.7
    
    
    
    83.0
    
    
    
    90.7Gross profit (loss)
    
    
    16.5
    
    
    
    (0.7
    )
    
    
    17.0
    
    
    
    9.3Operating expensesSelling and marketing
    
    
    4.6
    
    
    
    4.4
    
    
    
    4.3
    
    
    
    4.2Distribution and warehousing
    
    
    1.9
    
    
    
    2.1
    
    
    
    1.8
    
    
    
    2.0General and administrative
    
    
    5.5
    
    
    
    5.4
    
    
    
    5.8
    
    
    
    5.3Bad debt expense
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    Depreciation and amortization
    
    
    1.1
    
    
    
    2.5
    
    
    
    1.2
    
    
    
    1.9Goodwill and intangible impairment
    
    
    
    
    
    
    3.6
    
    
    
    
    
    
    
    16.5Total operating expenses
    
    
    13.2
    
    
    
    18.0
    
    
    
    13.2
    
    
    
    29.9Income (loss) from operations
    
    
    3.4
    
    
    
    (18.7
    )
    
    
    3.8
    
    
    
    (20.6
    )Interest expense
    
    
    (0.8
    )
    
    
    (0.8
    )
    
    
    (0.6
    )
    
    
    (0.8
    )Other income (expense), net
    
    
    0.1
    
    
    
    (0.4
    )
    
    
    0.2
    
    
    
    (0.2
    )Net income (loss) before taxes
    
    
    2.7
    
    
    
    (19.9
    )
    
    
    3.4
    
    
    
    (21.6
    )Income tax benefit (expense)
    
    
    2.7
    
    
    
    (7.9
    )
    
    
    0.1
    
    
    
    2.6Net income (loss)
    
    
    5.4
    %
    
    
    (27.8
    )%
    
    
    3.5
    %
    
    
    (19.0
    )%
 Publishing Segment
  Fiscal 2010 Third Quarter Results Compared To Fiscal 2009 Third Quarter
 Net Sales
  Gross Profit (Loss)
   26




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##### Table of Contents



Operating Expenses
       Operating Income (Loss)
  Fiscal 2010 Nine Months Results Compared With Fiscal 2009 Nine Months
 Net Sales
  Gross Profit
  27




---



##### Table of Contents



Operating Expenses
       Operating Income (Loss)
  Distribution Segment
  28




---



##### Table of Contents



Fiscal 2010 Third Quarter Results Compared To Fiscal 2009 Third Quarter
 Net Sales
  Gross Profit
   Operating Expenses
       29




---



##### Table of Contents



Operating Income
  Fiscal 2010 Nine Months Results Compared With Fiscal 2009 Nine Months
 Net Sales
  Gross Profit
   Operating Expenses
     30




---



##### Table of Contents



Operating Income (Loss)
  Consolidated Other Income and Expense
    Consolidated Income Tax Expense
    31




---



##### Table of Contents



Consolidated Net Income (Loss)
  Market Risk
    Seasonality and Inflation
 
 Liquidity and Capital Resources
 Cash Flow Analysis
 Operating Activities
   32




---



##### Table of Contents



Investing Activities
      Financing Activities
    Capital Resources
    33




---



##### Table of Contents



Liquidity
   34




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##### Table of Contents



Contractual Obligations
  Less
    
    
    
    
    
    
    
    
    
    
    Morethan 1
    
    
    13
    
    
    35
    
    
    than 5Total
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    YearsOperating leases
    
    $
    22,174
    
    
    $
    721
    
    
    $
    5,083
    
    
    $
    5,200
    
    
    $
    11,170Capital leases
    
    
    181
    
    
    
    28
    
    
    
    124
    
    
    
    29
    
    
    
    License and distribution agreement
    
    
    9,691
    
    
    
    1,953
    
    
    
    6,538
    
    
    
    1,200
    
    
    
    Deferred compensation
    
    
    1,543
    
    
    
    1,543
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    33,589
    
    
    $
    4,245
    
    
    $
    11,745
    
    
    $
    6,429
    
    
    $
    11,170
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Managements Discussion and Analysis of Financial Condition and Results of Operations  Market
Risk
 
 Item 4. Controls and Procedures
    35




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 Managements Discussion and Analysis of
Financial Condition and Results of Operations  Forward-Looking Statements / Risk Factors  
 
 Item 2. Unregistered Sales of Equity 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
  10.1
    
    Form of Credit Agreement by and among Navarre Corporation, together with its
subsidiaries, and the lenders that are signatories thereto dated November 12, 2009
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated
November 13, 2009).31.1
    
    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)31.2
    
    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)32.1
    
    Certification of the Chief Executive Officer pursuant Section 906 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)32.2
    
    Certification of the Chief Financial Officer pursuant Section 906 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
 36




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##### Table of Contents



SIGNATURES
  Navarre Corporation
(Registrant)Date: February 9, 2010
    /s/ Cary L. DeaconCary L. DeaconPresident and Chief Executive Officer
(Principal Executive Officer)Date: February 9, 2010
    /s/ J. Reid PorterJ. Reid PorterExecutive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) 37