##### 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 June 30, 2010
 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
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ
  Class
    
    Outstanding at August 13, 2010Common Stock, No Par Value
    
    36,376,835 shares




---



##### 



NAVARRE CORPORATION
 Index
 PagePART I. FINANCIAL INFORMATION
    
    
    3Item 1. Consolidated Financial Statements. (Unaudited)
    
    
    3Consolidated Balance Sheets  June 30, 2010 and March 31, 2010 (Audited)
    
    
    3Consolidated Statements of Operations  Three Months ended June 30, 2010 and 2009
    
    
    4Consolidated Statements of Cash Flows  Three Months ended June 30, 2010 and 2009
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    30PART II. OTHER INFORMATION
    
    
    31Item 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    31Item 4. (Removed and Reserved)
    
    
    31Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    31SIGNATURES
    
    
    32EX-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)
 June 30,
    
    
    March 31,2010
    
    
    2010(Unaudited)
    
    
    (Note)Assets:Current assets:Marketable securities
    
    $
    
    
    
    $
    2Accounts receivable, less allowances of $9,153 and $8,913, respectively
    
    
    42,859
    
    
    
    61,880Inventories
    
    
    24,820
    
    
    
    21,164Prepaid expenses and other current assets
    
    
    14,633
    
    
    
    13,511Income tax receivable
    
    
    
    
    
    
    94Deferred tax assets  current, net
    
    
    7,203
    
    
    
    7,603Current assets of discontinued operations
    
    
    6,347
    
    
    
    6,071Total current assets
    
    
    95,862
    
    
    
    110,325Property and equipment, net of accumulated depreciation of $20,400 and $19,556, respectively
    
    
    11,292
    
    
    
    11,790Software development costs, net of accumulated amortization of $425 and $324, respectively
    
    
    1,870
    
    
    
    1,723Other assets:Intangible assets, net of accumulated amortization of $84 and $38, respectively
    
    
    2,773
    
    
    
    32Goodwill
    
    
    5,866
    
    
    
    Deferred tax assets  non-current, net
    
    
    13,500
    
    
    
    13,808Other assets
    
    
    4,346
    
    
    
    4,491Non-current assets of discontinued operations
    
    
    29,715
    
    
    
    29,434Total assets
    
    $
    165,224
    
    
    $
    171,603Liabilities and shareholders equity:Current liabilities:Revolving line of credit
    
    $
    19,709
    
    
    $
    6,634Capital lease obligation  short-term
    
    
    50
    
    
    
    51Accounts payable
    
    
    65,614
    
    
    
    79,968Checks written in excess of cash balances
    
    
    2,552
    
    
    
    4,816Deferred compensation
    
    
    
    
    
    
    1,333Accrued expenses
    
    
    5,739
    
    
    
    10,977Income tax payable  short-term
    
    
    6
    
    
    
    Current liabilities of discontinued operations
    
    
    6,121
    
    
    
    5,760Total current liabilities
    
    
    99,791
    
    
    
    109,539Long-term liabilities:Contingent payment  acquisition (Note 3)
    
    
    948
    
    
    
    Note payable  acquisition (Note 3)
    
    
    1,100
    
    
    
    Capital lease obligation  long-term
    
    
    69
    
    
    
    82Income taxes payable  long-term
    
    
    1,291
    
    
    
    1,221Total liabilities
    
    
    103,199
    
    
    
    110,842Commitments and contingencies (Note 12)Shareholders equity:Common stock, no par value:Authorized shares  100,000,000; issued and outstanding shares  36,369,168 at June
30, 2010 and 36,366,668 at March 31, 2010
    
    
    162,241
    
    
    
    162,015Accumulated deficit
    
    
    (100,156
    )
    
    
    (101,254
    )Accumulated other comprehensive loss
    
    
    (60
    )
    
    
    Total shareholders equity
    
    
    62,025
    
    
    
    60,761Total liabilities and shareholders equity
    
    $
    165,224
    
    
    $
    171,603
 
 Note: The balance sheet at March 31, 2010 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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NAVARRE CORPORATION
 
 Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 Three Months EndedJune 30,2010
    
    
    2009Net sales
    
    $
    98,792
    
    
    $
    123,416Cost of sales (exclusive of depreciation and amortization)
    
    
    84,315
    
    
    
    108,453Gross profit
    
    
    14,477
    
    
    
    14,963Operating expenses:Selling and marketing
    
    
    4,884
    
    
    
    4,068Distribution and warehousing
    
    
    2,472
    
    
    
    2,076General and administrative
    
    
    5,074
    
    
    
    6,453Depreciation and amortization
    
    
    891
    
    
    
    1,222Total operating expenses
    
    
    13,321
    
    
    
    13,819Income from operations
    
    
    1,156
    
    
    
    1,144Other income (expense):Interest expense
    
    
    (396
    )
    
    
    (568
    )Interest income
    
    
    1
    
    
    
    7Other income (expense), net
    
    
    (259
    )
    
    
    451Income from continuing operations before income tax
    
    
    502
    
    
    
    1,034Income tax expense
    
    
    (299
    )
    
    
    (180
    )Net income from continuing operations
    
    
    203
    
    
    
    854Discontinued operations:Income from discontinued operations, net of tax
    
    
    895
    
    
    
    3,307Net income
    
    $
    1,098
    
    
    $
    4,161Basic earnings per common share:Continued operations
    
    $
    0.01
    
    
    $
    0.02Discontinued operations
    
    
    0.02
    
    
    
    0.09Net income
    
    $
    0.03
    
    
    $
    0.11Diluted earnings per common share:Continued operations
    
    $
    0.01
    
    
    $
    0.02Discontinued operations
    
    
    0.02
    
    
    
    0.09Net income
    
    $
    0.03
    
    
    $
    0.11Weighted average shares outstanding:Basic
    
    
    36,367
    
    
    
    36,237Diluted
    
    
    36,813
    
    
    
    36,347
 See accompanying notes to consolidated financial statements.
 4




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NAVARRE CORPORATION
 
 Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 Three Months EndedJune 30,2010
    
    
    2009Operating activities:Net income
    
    $
    1,098
    
    
    $
    4,161Adjustments to reconcile net income to net cash (used in) provided by operating activities:Income from discontinued operations
    
    
    (895
    )
    
    
    (3,307
    )Depreciation and amortization
    
    
    891
    
    
    
    1,222Amortization of debt acquisition costs
    
    
    149
    
    
    
    109Amortization of software development costs
    
    
    101
    
    
    
    Share-based compensation expense
    
    
    226
    
    
    
    257Deferred income taxes
    
    
    708
    
    
    
    1,888Deferred compensation expense
    
    
    
    
    
    
    (198
    )Other
    
    
    90
    
    
    
    24Changes in operating assets and liabilities:Accounts receivable
    
    
    18,569
    
    
    
    13,477Inventories
    
    
    (2,934
    )
    
    
    (6,748
    )Prepaid expenses
    
    
    (1,028
    )
    
    
    (110
    )Income taxes receivable
    
    
    94
    
    
    
    246Other assets
    
    
    (92
    )
    
    
    226Accounts payable
    
    
    (13,185
    )
    
    
    (8,897
    )Income taxes payable
    
    
    76
    
    
    
    94Accrued expenses
    
    
    (5,304
    )
    
    
    501Net cash (used in) provided by operating activities
    
    
    (1,436
    )
    
    
    2,945Investing activities:Cash paid for acquisition
    
    
    (8,090
    )
    
    
    Purchases of property and equipment
    
    
    (329
    )
    
    
    (187
    )Purchases of software development
    
    
    (248
    )
    
    
    (426
    )Proceeds from sale of intangible assets
    
    
    
    
    
    
    2Net cash used in investing activities
    
    
    (8,667
    )
    
    
    (611
    )Financing activities:Proceeds from revolving line of credit
    
    
    59,017
    
    
    
    68,141Payments on revolving line of credit
    
    
    (45,942
    )
    
    
    (69,045
    )Payment of deferred compensation
    
    
    (1,333
    )
    
    
    Checks written in excess of cash balances
    
    
    (2,264
    )
    
    
    (144
    )Debt acquisition costs
    
    
    
    
    
    
    (100
    )Repayments of capital lease obligations
    
    
    (14
    )
    
    
    (20
    )Net cash provided by (used in) financing activities
    
    
    9,464
    
    
    
    (1,168
    )Net effect of exchange rate changes on cash
    
    
    (60
    )
    
    
    Net cash (used in) provided by continuing operations
    
    
    (699
    )
    
    
    1,166Discontinued operations:Net cash provided by (used in) operating activities
    
    
    832
    
    
    
    (1,109
    )Net cash used in investing activities
    
    
    (130
    )
    
    
    (55
    )Net cash used in financing activities
    
    
    (3
    )
    
    
    (2
    )Net increase (decrease) in cash
    
    
    
    
    
    
    Cash at beginning of period
    
    
    
    
    
    
    Cash at end of period
    
    $
    
    
    
    $
    Supplemental cash flow information:Cash paid for (received from):Interest
    
    $
    423
    
    
    $
    546Income taxes, net of refunds
    
    
    (40
    )
    
    
    (113
    )
 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
  Fair Value of Financial Instruments
  6




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##### Table of Contents



Revenue Recognition
    Entertainment  Films
 Note 2  Discontinued Operations
 Discontinued Operations
  Three Months EndedJune 30,2010
    
    
    2009Net sales
    
    $
    7,700
    
    
    $
    10,889Interest expense
    
    
    97
    
    
    
    151Net income from discontinued operations, before income taxes
    
    
    1,422
    
    
    
    5,221Income tax expense
    
    
    (527
    )
    
    
    (1,914
    )Net income from discontinued operations, net of taxes
    
    $
    895
    
    
    $
    3,307
 7




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##### Table of Contents



June 30,
    
    
    March 31,2010
    
    
    2010Accounts receivable, net
    
    $
    1,752
    
    
    $
    747Inventory
    
    
    4,346
    
    
    
    5,108Prepaid expenses and other current assets
    
    
    249
    
    
    
    216Current assets of discontinued operations
    
    
    6,347
    
    
    
    6,071Property and equipment, net of accumulated depreciation
    
    
    1,507
    
    
    
    1,516Intangible assets, net of amortization
    
    
    1,365
    
    
    
    1,469License fees, net of amortization
    
    
    16,370
    
    
    
    16,565Production costs, net of amortization
    
    
    10,404
    
    
    
    9,814Other assets
    
    
    69
    
    
    
    70Total assets of discontinued operations
    
    $
    36,062
    
    
    $
    35,505Accounts payable
    
    $
    2,900
    
    
    $
    2,483Capital lease obligation  short-term
    
    
    4
    
    
    
    7Accrued expenses
    
    
    3,217
    
    
    
    3,270Current liabilities of discontinued operations
    
    $
    6,121
    
    
    $
    5,760
 Note 3  Acquisition
 Business Combinations
  Punch! Software, LLC
    8




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##### Table of Contents



Consideration:Cash
    
    $
    8,090Note payable
    
    
    1,100Contingent payment
    
    
    948Fair value of total consideration transferred
    
    $
    10,138Preliminarily, the Punch! purchase price will be allocated as follows:Accounts receivable
    
    $
    1,153Inventory
    
    
    722Prepaid expenses
    
    
    94Property and equipment
    
    
    18Purchased intangibles
    
    
    2,787Goodwill
    
    
    5,866Accounts payable
    
    
    (436
    )Accrued expenses
    
    
    (66
    )$
    10,138
 Consolidated Statement of Operations
 Note 4  Marketable Securities
 Fair Value Measurements and Disclosures
    9




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##### Table of Contents



Note 5  Accounts Receivable
  June 30,
    
    
    March 31,2010
    
    
    2010Trade receivables
    
    $
    49,538
    
    
    $
    68,842Vendor receivables
    
    
    1,935
    
    
    
    1,700Other receivables
    
    
    539
    
    
    
    25152,012
    
    
    
    70,793Less: allowance for doubtful accounts and sales discounts
    
    
    3,427
    
    
    
    4,100Less: allowance for sales returns, net margin impact
    
    
    5,726
    
    
    
    4,813Total
    
    $
    42,859
    
    
    $
    61,880
 Note 6  Inventories
  June 30,
    
    
    March 31,2010
    
    
    2010Finished products
    
    $
    21,282
    
    
    $
    18,180Consigned inventory
    
    
    1,919
    
    
    
    1,619Raw materials
    
    
    1,619
    
    
    
    1,365Total
    
    $
    24,820
    
    
    $
    21,164
  Note 7  Prepaid Expenses and Other Current Assets
  June 30,
    
    
    March 31,2010
    
    
    2010Prepaid royalties
    
    $
    12,958
    
    
    $
    12,241Other
    
    
    1,675
    
    
    
    1,270Total
    
    $
    14,633
    
    
    $
    13,511
 Note 8  Property and Equipment
  June 30,
    
    
    March 31,2010
    
    
    2010Furniture and fixtures
    
    $
    1,159
    
    
    $
    1,140Computer and office equipment
    
    
    18,506
    
    
    
    17,500Warehouse equipment
    
    
    10,059
    
    
    
    10,049Leasehold improvements
    
    
    1,940
    
    
    
    1,898Construction in progress
    
    
    28
    
    
    
    759Total
    
    
    31,692
    
    
    
    31,346Less: accumulated depreciation and amortization
    
    
    20,400
    
    
    
    19,556Net property and equipment
    
    $
    11,292
    
    
    $
    11,790
 Note 9  Capitalized Software Development Costs
 Software
 10




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Consolidated
Statement of Operations
 June 30,
    
    
    March 31,2010
    
    
    2010Software development costs
    
    $
    2,295
    
    
    $
    2,047Less: accumulated amortization
    
    
    425
    
    
    
    324Net software development costs
    
    $
    1,870
    
    
    $
    1,723
  Note 10  Goodwill and Intangible Assets
 Goodwill
   Intangible assets
  As of June 30, 2010Gross carrying
    
    
    Accumulatedamount
    
    
    amortization
    
    
    NetDeveloped technology *
    
    $
    1,940
    
    
    $
    37
    
    
    $
    1,903Customer relationships *
    
    
    80
    
    
    
    1
    
    
    
    79Customer list *
    
    
    167
    
    
    
    5
    
    
    
    162Domain name
    
    
    70
    
    
    
    41
    
    
    
    29Trademarks (not amortized) *
    
    
    600
    
    
    
    
    
    
    
    600$
    2,857
    
    
    $
    84
    
    
    $
    2,773
 
 *
    
    Intangible assets acquired as part of the Punch! acquisition (see further disclosure in Note 3). As of March 31, 2010Gross carrying
    
    
    Accumulatedamount
    
    
    amortization
    
    
    NetDomain name
    
    $
    70
    
    
    $
    38
    
    
    $
    32
 11




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Remainder of fiscal 2011
    
    $
    3972012
    
    
    5262013
    
    
    4842014
    
    
    386Thereafter
    
    
    380
 Debt issuance costs
  June 30,
    
    
    March 31,2010
    
    
    2010Debt issuance costs
    
    $
    1,790
    
    
    $
    1,790Less: accumulated amortization
    
    
    398
    
    
    
    249Net debt issuance costs
    
    $
    1,392
    
    
    $
    1,541
 Consolidated Statements of
Operations
 Note 11  Accrued Expenses
  June 30,
    
    
    March 31,2010
    
    
    2010Compensation and benefits
    
    $
    2,128
    
    
    $
    6,527Royalties
    
    
    176
    
    
    
    614Rebates
    
    
    954
    
    
    
    1,252Rent
    
    
    921
    
    
    
    862Deferred revenue
    
    
    10
    
    
    
    Interest
    
    
    126
    
    
    
    205Other
    
    
    1,424
    
    
    
    1,517Total
    
    $
    5,739
    
    
    $
    10,977
 Note 12  Commitments and Contingencies
 Contingent payment  Punch! acquisition
  Leases
  12




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##### Table of Contents



Remainder of fiscal 2011
    
    $
    1,8342012
    
    
    2,4402013
    
    
    2,4372014
    
    
    2,0692015
    
    
    2,032Thereafter
    
    
    6,183$
    16,995
 Litigation and Proceedings
  SEC Investigation
  Note 13  Capital Leases
  June 30, 2010
    
    
    March 31, 2010Computer and office equipment
    
    $
    297
    
    
    $
    298Less: accumulated amortization
    
    
    184
    
    
    
    172Property and equipment, net
    
    $
    113
    
    
    $
    126
  Minimum LeaseCommitmentsRemainder of fiscal 2011
    
    $
    442012
    
    
    582013
    
    
    28Total minimum lease payments
    
    $
    130Less: amounts representing interest at rates ranging from 6.9% to 9.4%
    
    
    11Present value of minimum capital lease payments, reflected in the
balance sheet as current and noncurrent capital lease obligations of
$50 and $69, respectively
    
    $
    119
 Note 14  Bank Financing and Debt
  13




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Letter of Credit
  Note 15  Share-Based Compensation
  Stock Options
  WeightedaverageNumber of
    
    
    exerciseoptions
    
    
    priceOptions outstanding, beginning of period:
    
    
    3,547,299
    
    
    $
    4.77Granted
    
    
    96,000
    
    
    
    2.04Exercised
    
    
    (2,500
    )
    
    
    0.69Canceled
    
    
    (89,634
    )
    
    
    9.49Options outstanding, end of period
    
    
    3,551,165
    
    
    $
    4.58Options exercisable, end of period
    
    
    2,138,180
    
    
    $
    6.54Shares available for future grant, end of period
    
    
    3,413
 14




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##### Table of Contents



Restricted Stock
   Weightedaveragegrant dateShares
    
    
    fair valueUnvested, beginning of period:
    
    
    508,486
    
    
    $
    1.47Granted
    
    
    22,500
    
    
    
    2.09Vested
    
    
    
    
    
    
    Forfeited
    
    
    (7,666
    )
    
    
    1.68Unvested, end of period
    
    
    523,320
    
    
    $
    1.50
    Share-Based Compensation Valuation and Expense Information
  Three Months EndedJune 30,2010
    
    
    2009Expected life (in years)
    
    
    5.0
    
    
    
    5.0Expected volatility
    
    
    73
    %
    
    
    71
    %Risk-free interest rate
    
    
    2.60
    %
    
    
    1.65-2.93
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
 15




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Consolidated Statements of Operations
 Note 16  Shareholders Equity
   Note 17  Private Placement Warrants
  Note 18  Earnings Per Share
  Three Months EndedJune 30,2010
    
    
    2009Numerator:Net income from continuing operations
    
    $
    203
    
    
    $
    854Income from discontinued operations, net of tax
    
    
    895
    
    
    
    3,307Net income
    
    $
    1,098
    
    
    $
    4,161Denominator:Denominator for basic earnings per shareweighted-average shares
    
    
    36,367
    
    
    
    36,237Dilutive securities: Employee stock options and warrants
    
    
    446
    
    
    
    110Denominator for diluted earnings per shareadjusted weighted-average shares
    
    
    36,813
    
    
    
    36,347Basic earnings per common share:Continuing operations
    
    $
    0.01
    
    
    $
    0.02Discontinued operations
    
    
    0.02
    
    
    
    0.09Net income
    
    $
    0.03
    
    
    $
    0.11Diluted earnings per common share:Continuing operations
    
    $
    0.01
    
    
    $
    0.02Discontinued operations
    
    
    0.02
    
    
    
    0.09Net income
    
    $
    0.03
    
    
    $
    0.11
 16




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##### Table of Contents



Note 19 Comprehensive Income
   June 30, 2010
    
    
    June 30, 2009Net income from continuing operations
    
    $
    203
    
    
    $
    854Net unrealized gain (loss) on foreign exchange rate translation
    
    
    (60
    )
    
    
    Comprehensive income
    
    $
    143
    
    
    $
    854
   Note 20  Income Taxes
      17




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##### Table of Contents



Note 21  Related Party Transactions
 Employment/Severance Agreements
   Employment Agreement  FUNimation
  Note 22  Business Segments
     18




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##### Table of Contents



Distribution
    
    
    Publishing
    
    
    Eliminations
    
    
    ConsolidatedThree months ended June 30, 2010Net sales (1)
    
    $
    96,686
    
    
    $
    6,922
    
    
    $
    (4,816
    )
    
    $
    98,792Income (loss) from operations
    
    
    (9
    )
    
    
    1,165
    
    
    
    
    
    
    
    1,156Income (loss) from continuing operations, before income tax (2)
    
    
    (19
    )
    
    
    1,311
    
    
    
    (790
    )
    
    
    502Depreciation and amortization expense
    
    
    809
    
    
    
    82
    
    
    
    
    
    
    
    891Capital expenditures
    
    
    276
    
    
    
    53
    
    
    
    
    
    
    
    329Total assets (3)
    
    
    104,355
    
    
    
    30,014
    
    
    
    (5,207
    )
    
    
    129,162
 Distribution
    
    
    Publishing
    
    
    Eliminations
    
    
    ConsolidatedThree months ended June 30, 2009Net sales (1)
    
    $
    121,396
    
    
    $
    6,797
    
    
    $
    (4,777
    )
    
    $
    123,416Income from operations
    
    
    364
    
    
    
    780
    
    
    
    
    
    
    
    1,144Income from continuing operations, before income tax (2)
    
    
    668
    
    
    
    1,108
    
    
    
    (742
    )
    
    
    1,034Depreciation and amortization expense
    
    
    1,057
    
    
    
    165
    
    
    
    
    
    
    
    1,222Capital expenditures
    
    
    143
    
    
    
    44
    
    
    
    
    
    
    
    187Total assets (3)
    
    
    120,819
    
    
    
    17,217
    
    
    
    (6,476
    )
    
    
    131,560
 
 (1)
    
    Excluded from publishing sales above, are net sales from discontinued operations for the
three months ended June 30, 2010 and 2009 of $7.7 million and $10.9 million, respectively.(2)
    
    Eliminations represents the interest expense previously allocated to FUNimation, which in
accordance with ASC 205-20, is not allowed to be allocated to discontinued operations.(3)
    
    Excluded from total publishing assets above, are $36.1 million and $41.1 million in
assets of discontinued operations at June 30, 2010 and 2009, respectively.  Distribution
    
    
    Publishing
    
    
    Eliminations
    
    
    ConsolidatedThree months ended June 30, 2010Software
    
    $
    83,947
    
    
    $
    6,922
    
    
    $
    (4,816
    )
    
    $
    86,053Home video
    
    
    9,069
    
    
    
    
    
    
    
    
    
    
    
    9,069Video games
    
    
    3,670
    
    
    
    
    
    
    
    
    
    
    
    3,670Consolidated
    
    $
    96,686
    
    
    $
    6,922
    
    
    $
    (4,816
    )
    
    $
    98,792
 Distribution
    
    
    Publishing
    
    
    Eliminations
    
    
    ConsolidatedThree months ended June 30, 2009Software
    
    $
    101,015
    
    
    $
    6,661
    
    
    $
    (5,041
    )
    
    $
    102,635Home video
    
    
    11,455
    
    
    
    136
    
    
    
    264
    
    
    
    11,855Video games
    
    
    8,926
    
    
    
    
    
    
    
    
    
    
    
    8,926Consolidated
    
    $
    121,396
    
    
    $
    6,797
    
    
    $
    (4,777
    )
    
    $
    123,416
 Note 23  Subsequent Events
  19




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Overview
        Executive Summary
 Continuing Operations
     20




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Discontinued Operations
    Working Capital and Debt
     21




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##### Table of Contents



Forward-Looking Statements / Risk Factors
    22




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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 EndedJune 30,(Unaudited)(In thousands)
    
    2010
    
    
    2009Net sales:Distribution
    
    $
    96,686
    
    
    $
    121,396Publishing
    
    
    6,922
    
    
    
    6,797Net sales before inter-company eliminations
    
    
    103,608
    
    
    
    128,193Inter-company sales
    
    
    (4,816
    )
    
    
    (4,777
    )Net sales as reported
    
    $
    98,792
    
    
    $
    123,416
 23




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##### Table of Contents



Results of Operations
 Consolidated Statements of Operations
 Three Months EndedJune 30,(Unaudited)2010
    
    
    2009Net sales:Distribution
    
    
    97.9
    %
    
    
    98.4
    %Publishing
    
    
    7.0
    
    
    
    5.5Inter-company sales
    
    
    (4.9
    )
    
    
    (3.9
    )Total net sales
    
    
    100.0
    
    
    
    100.0Cost of sales, exclusive of amortization and depreciation
    
    
    85.3
    
    
    
    87.9Gross profit
    
    
    14.7
    
    
    
    12.1Operating expenses:Selling and marketing
    
    
    4.9
    
    
    
    3.3Distribution and warehousing
    
    
    2.5
    
    
    
    1.7General and administrative
    
    
    5.1
    
    
    
    5.2Depreciation and amortization
    
    
    0.9
    
    
    
    1.0Total operating expenses
    
    
    13.4
    
    
    
    11.2Income from operations
    
    
    1.3
    
    
    
    0.9Interest expense
    
    
    (0.4
    )
    
    
    (0.5
    )Other income (expense), net
    
    
    (0.3
    )
    
    
    0.4Income from continuing operations  before taxes
    
    
    0.6
    
    
    
    0.8Income tax expense
    
    
    (0.3
    )
    
    
    (0.1
    )Net income from continuing operations
    
    
    0.3
    
    
    
    0.7Discontinued operations:Income from discontinued operations, net of tax
    
    
    0.9
    
    
    
    2.7Net income
    
    
    1.2
    %
    
    
    3.4
    %
 Distribution Segment
  Fiscal 2011 First Quarter Results from Continuing Operations Compared To Fiscal 2010 First Quarter
 Net Sales (before inter-company eliminations)
  Gross Profit
  24




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##### Table of Contents



Operating Expenses
      Operating Income (Loss)
  Publishing Segment
    Fiscal 2011 First Quarter Results from Continuing Operations Compared To Fiscal 2010 First Quarter
 Net Sales (before inter-company eliminations)
  25




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##### Table of Contents



Gross Profit
  Operating Expenses
     Operating Income
  Consolidated Other Income and Expense
    Consolidated Income Tax Expense from Continuing Operations
   26




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##### Table of Contents



Consolidated Net Income from Continuing Operations
  Discontinued Operations
   Consolidated Net Income
  Market Risk
     27




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##### Table of Contents



Seasonality and Inflation
  Liquidity and Capital Resources
 Cash Flow Analysis
 Operating Activities
    Investing Activities
    Financing Activities
    28




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##### Table of Contents



Capital Resources
     Liquidity
    29




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##### Table of Contents



Contractual Obligations
  Less
    
    
    
    
    
    
    
    
    
    
    Morethan 1
    
    
    1  3
    
    
    3  5
    
    
    than 5Total
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    YearsOperating leases
    
    $
    19,518
    
    
    $
    1,765
    
    
    $
    4,951
    
    
    $
    4,292
    
    
    $
    8,510Capital leases
    
    
    131
    
    
    
    44
    
    
    
    87
    
    
    
    
    
    
    
    Contingent payment  acquisition
    
    
    948
    
    
    
    
    
    
    
    948
    
    
    
    
    
    
    
    Note payable  acquisition
    
    
    1,100
    
    
    
    
    
    
    
    1,100
    
    
    
    
    
    
    
    License and distribution agreement
    
    
    3,148
    
    
    
    933
    
    
    
    2,055
    
    
    
    160
    
    
    
    Total
    
    $
    24,845
    
    
    $
    2,742
    
    
    $
    9,141
    
    
    $
    4,452
    
    
    $
    8,510
  
 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
      30




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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. (Removed and Reserved).
 
 Item 5. Other Information
  
 Item 6. Exhibits
  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)
 31




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##### Table of Contents



SIGNATURES
  Navarre Corporation
(Registrant)Date: August 16, 2010
    /s/ Cary L. DeaconCary L. DeaconPresident and Chief Executive Officer

(Principal Executive Officer)Date: August 16, 2010
    /s/ J. Reid PorterJ. Reid PorterChief Operating Officer and Chief Financial Officer
(Principal Financial and Accounting Officer) 32