##### 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, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 for the transition period fromto
 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
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Class
    
    Outstanding at August 4, 2008Common Stock, No Par Value
    
    36,237,486 shares




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##### 



NAVARRE CORPORATION
 Index
 PART I. FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements. (Unaudited)Consolidated Balance Sheets  June 30, 2008 and March 31, 2008 (Audited)Consolidated Statements of Operations  Three Months ended June 30, 2008 and 2007Consolidated Statements of Cash Flows  Three Months ended June 30, 2008 and 2007Notes to Consolidated Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures about Market RiskItem 4. Controls and ProceduresPART II. OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSIGNATURES302 Certification of Chief Executive Officer302 Certification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer
  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 31,2008
    
    
    2008(Unaudited)
    
    
    (Note)Assets:Current assets:Cash and cash equivalents
    
    $
    
    
    
    $
    4,445Marketable securities
    
    
    1,199
    
    
    
    1,506Accounts receivable, less allowance for doubtful accounts and sales reserves of $14,981
at June 30, 3008 and $15,417 at March 31, 2008
    
    
    88,528
    
    
    
    76,806Inventories
    
    
    42,046
    
    
    
    32,654Prepaid expenses and other current assets
    
    
    13,871
    
    
    
    12,118Income tax receivable
    
    
    2,143
    
    
    
    937Deferred tax assets  current
    
    
    8,916
    
    
    
    9,100Total current assets
    
    
    156,703
    
    
    
    137,566Property and equipment, net of accumulated depreciation of $15,584 and $14,484, respectively
    
    
    18,525
    
    
    
    17,181Assets held for sale, net of accumulated depreciation of $194
    
    
    1,428
    
    
    
    1,428Other assets:Marketable securities
    
    
    1,333
    
    
    
    2,667Goodwill
    
    
    81,697
    
    
    
    81,697Intangible assets, net of amortization of $22,401 and $21,180, respectively
    
    
    9,002
    
    
    
    9,984License fees, net of amortization of $20,647 and $19,595, respectively
    
    
    21,852
    
    
    
    20,515Production costs, net of amortization of $8,220 and $7,439, respectively
    
    
    8,114
    
    
    
    7,316Other assets
    
    
    4,535
    
    
    
    5,108Total assets
    
    $
    303,189
    
    
    $
    283,462Liabilities and shareholders equity:Current liabilities:Note payable  line of credit
    
    $
    48,731
    
    
    $
    31,314Note payable  short term
    
    
    
    
    
    
    150Capital lease obligation  short term
    
    
    47
    
    
    
    59Accounts payable
    
    
    106,390
    
    
    
    92,199Checks written in excess of cash balance
    
    
    524
    
    
    
    Deferred compensation
    
    
    2,090
    
    
    
    2,080Accrued expenses
    
    
    12,951
    
    
    
    16,118Total current liabilities
    
    
    170,733
    
    
    
    141,920Long-term liabilities:Note payable  long-term
    
    
    
    
    
    
    9,594Capital lease obligation  long-term
    
    
    48
    
    
    
    60Deferred compensation
    
    
    2,035
    
    
    
    3,491Deferred tax liabilities  non-current
    
    
    4,087
    
    
    
    3,106Income taxes payable
    
    
    947
    
    
    
    880Total liabilities
    
    
    177,850
    
    
    
    159,051Commitments and contingencies (Note 20)Shareholders equity:Common stock, no par value:Authorized shares  100,000,000; issued and outstanding shares  36,237,486 at June
30, 2008 and 36,227,886 at March 31, 2008
    
    
    160,404
    
    
    
    160,103Accumulated deficit
    
    
    (35,065
    )
    
    
    (35,692
    )Total shareholders equity
    
    
    125,339
    
    
    
    124,411Total liabilities and shareholders equity
    
    $
    303,189
    
    
    $
    283,462
 
 Note: The balance sheet at March 31, 2008 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 30,2008
    
    
    2007Net sales
    
    $
    142,025
    
    
    $
    137,022Cost of sales (exclusive of depreciation and amortization)
    
    
    119,899
    
    
    
    113,039Gross profit
    
    
    22,126
    
    
    
    23,983Operating expenses:Selling and marketing
    
    
    5,715
    
    
    
    6,915Distribution and warehousing
    
    
    2,884
    
    
    
    2,712General and administrative
    
    
    8,453
    
    
    
    7,480Bad debt expense
    
    
    
    
    
    
    55Depreciation and amortization
    
    
    2,321
    
    
    
    2,218Total operating expenses
    
    
    19,373
    
    
    
    19,380Income from operations
    
    
    2,753
    
    
    
    4,603Other income (expense):Interest expense
    
    
    (1,615
    )
    
    
    (1,674
    )Interest income
    
    
    15
    
    
    
    68Other income (expense), net
    
    
    (98
    )
    
    
    223Income from continuing operations before income tax
    
    
    1,055
    
    
    
    3,220Income tax expense
    
    
    (428
    )
    
    
    (1,314
    )Net income from continuing operations
    
    
    627
    
    
    
    1,906Discontinued operations, net of taxGain on sale of discontinued operations
    
    
    
    
    
    
    4,647Loss from discontinued operations
    
    
    
    
    
    
    (1,109
    )Net income
    
    $
    627
    
    
    $
    5,444Basic earnings per common share:Continuing operations
    
    $
    .02
    
    
    $
    .05Discontinued operations
    
    
    
    
    
    
    .10Net income
    
    $
    .02
    
    
    $
    .15Diluted earnings per common share:Continuing operations
    
    $
    .02
    
    
    $
    .05Discontinued operations
    
    
    
    
    
    
    .10Net income
    
    $
    .02
    
    
    $
    .15Weighted average shares outstanding:Basic
    
    
    36,186
    
    
    
    35,985Diluted
    
    
    36,250
    
    
    
    36,276
 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 30,2008
    
    
    2007Operating activities:Net income
    
    $
    627
    
    
    $
    5,444Adjustments to reconcile net income to net cash (used in) provided by operating activities:Loss from discontinued operations
    
    
    
    
    
    
    1,109Gain on sale of discontinued operations
    
    
    
    
    
    
    (4,647
    )Depreciation and amortization
    
    
    2,321
    
    
    
    2,218Amortization of debt acquisition costs
    
    
    72
    
    
    
    70Write-off of debt acquisition costs
    
    
    490
    
    
    
    Amortization of license fees
    
    
    1,052
    
    
    
    1,665Amortization of production costs
    
    
    781
    
    
    
    581Change in deferred revenue
    
    
    525
    
    
    
    777Share-based compensation expense
    
    
    288
    
    
    
    288Deferred income taxes
    
    
    1,165
    
    
    
    669Deferred compensation expense
    
    
    208
    
    
    
    (52
    )Other
    
    
    (2
    )
    
    
    29Changes in operating assets and liabilities:Accounts receivable
    
    
    (11,722
    )
    
    
    338Inventories
    
    
    (9,392
    )
    
    
    (5,282
    )Prepaid expenses
    
    
    (1,753
    )
    
    
    (2,126
    )Income taxes receivable
    
    
    (1,206
    )
    
    
    827Other assets
    
    
    201
    
    
    
    311Production costs
    
    
    (1,579
    )
    
    
    (1,107
    )License fees
    
    
    (2,389
    )
    
    
    (2,026
    )Accounts payable
    
    
    13,991
    
    
    
    2,118Income taxes payable
    
    
    67
    
    
    
    593Accrued expenses
    
    
    (3,692
    )
    
    
    (1,297
    )Net cash (used in) provided by operating activities
    
    
    (9,947
    )
    
    
    500Investing activities:Purchases of property and equipment
    
    
    (2,444
    )
    
    
    (2,805
    )Purchases of intangible assets
    
    
    (239
    )
    
    
    (335
    )Sale of marketable equity securities
    
    
    1,654
    
    
    
    Purchases of marketable equity securities
    
    
    
    
    
    
    (4,000
    )Net cash used in investing activities
    
    
    (1,029
    )
    
    
    (7,140
    )Financing activities:Proceeds from note payable, line of credit
    
    
    59,545
    
    
    
    47,755Payments on note payable, line of credit
    
    
    (42,128
    )
    
    
    (43,708
    )Repayments of note payable
    
    
    (9,744
    )
    
    
    (2,143
    )Payment of deferred compensation
    
    
    (1,654
    )
    
    
    Checks written in excess of cash
    
    
    524
    
    
    
    Other
    
    
    (12
    )
    
    
    80Net cash provided by financing activities
    
    
    6,531
    
    
    
    1,984Net decrease in cash from continuing operations
    
    
    (4,445
    )
    
    
    (4,656
    )Discontinued operations:Net cash used in operating activities
    
    
    
    
    
    
    (784
    )Net cash provided by investing activities, proceeds from sale of discontinued operations
    
    
    
    
    
    
    6,500Net (decrease) increase in cash
    
    
    (4,445
    )
    
    
    1,060Cash at beginning of period
    
    
    4,445
    
    
    
    966Cash at end of period
    
    $
    
    
    
    $
    2,026Supplemental cash flow information:Cash paid for:Interest
    
    $
    1,372
    
    
    $
    1,372Income taxes, net of refunds
    
    
    412
    
    
    
    3Supplemental schedule of non-cash investing and financing activities:Debt acquisition costs included in accounts payable
    
    
    200
    
    
    
    
 See accompanying notes to consolidated financial statements.
 5




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NAVARRE CORPORATION
 
 Notes to Consolidated Financial Statements
(Unaudited)
 Note 1  Organization and Basis of Presentation
      Basis of Consolidation
  Revenue Recognition
    Accounting by
Producers or Distributors of Films.
 6




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Recently
Issued Accounting Pronouncements
 Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion (Including Partial Cash Settlement Accounting for
Convertible Debt and Debt issued with Stock Purchase Warrants
 Note 2  Discontinued Operations
   Net sales
    
    $
    5,070Loss from discontinued operations, before income tax
    
    
    (1,865
    )Income tax benefit
    
    
    756Net loss from discontinued operations
    
    $
    (1,109
    )
   Note 3  Marketable Securities
   7




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As of June 30, 2008Gross
    
    
    GrossEstimated fair
    
    
    unrealized
    
    
    unrealizedvalue
    
    
    holding gains
    
    
    holding lossesAvailable-for-sale:Government agency bonds
    
    $
    707
    
    
    $
    
    
    
    $
    Money market fund
    
    
    1,825
    
    
    
    
    
    
    
    $
    2,532
    
    
    $
    
    
    
    $
    
   Fair Value Measurements
  
    
    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.
  Effective Date of FASB Statement No. 157
 The Fair Value Option for
Financial Assets and Financial Liabilities  Including an amendment of FASB Statement No. 115
 8




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Note 4  Share-Based Compensation
  Stock Options
  WeightedWeighted
    
    
    averageaverage
    
    
    remaining
    
    
    AggregateNumber of
    
    
    exercise
    
    
    contractual
    
    
    intrinsicoptions
    
    
    price
    
    
    term
    
    
    valueOptions outstanding, beginning of period:
    
    
    3,132,499
    
    
    $
    6.78Granted
    
    
    83,000
    
    
    
    1.80Exercised
    
    
    (9,600
    )
    
    
    1.26Canceled
    
    
    (138,499
    )
    
    
    8.71Options outstanding, end of period
    
    
    3,067,400
    
    
    $
    6.58
    
    
    
    5.8
    
    
    $
    Options exercisable, end of period
    
    
    2,209,602
    
    
    $
    7.75
    
    
    
    4.7
    
    
    $
    Shares available for future grant, end of period
    
    
    1,787,500
    Restricted Stock
   WeightedWeighted
    
    
    averageaverage
    
    
    remaininggrant date
    
    
    contractualShares
    
    
    fair value
    
    
    termUnvested, beginning of period:
    
    
    171,917
    
    
    $
    3.02
    
    
    
    9.34Granted
    
    
    
    
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (1,000
    )
    
    
    2.41
    
    
    
    Unvested, end of period
    
    
    170,917
    
    
    $
    3.02
    
    
    
    9.09
 9




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Restricted Stock Units
   Share-Based Compensation Valuation and Expense Information
  Three Months EndedJune 30,2008
    
    
    2007Expected life (in years)
    
    
    5.0
    
    
    
    5.0Expected volatility
    
    
    65
    %
    
    
    67
    %Risk-free interest rate
    
    
    2.65
    %
    
    
    4.54-5.02
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
   10




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Note 5  Earnings Per Share
   Three Months EndedJune 30,2008
    
    
    2007Numerator:Net income from continuing operations
    
    $
    627
    
    
    $
    1,906Denominator:Denominator for basic earnings per shareweighted-average shares
    
    
    36,186
    
    
    
    35,985Dilutive securities: Employee stock options and warrants
    
    
    64
    
    
    
    291Denominator for diluted earnings per shareadjusted
weighted-average shares
    
    
    36,250
    
    
    
    36,276Net earnings per share from continuing operations:Basic earnings per share
    
    $
    .02
    
    
    $
    .05Diluted earnings per share
    
    $
    .02
    
    
    $
    .05
   Note 6  Shareholders Equity
   Note 7  Accounts Receivable
  June 30,
    
    
    March 31,2008
    
    
    2008Trade receivables
    
    $
    97,112
    
    
    $
    87,801Vendor receivables
    
    
    4,917
    
    
    
    2,575Other receivables
    
    
    1,480
    
    
    
    1,847$
    103,509
    
    
    $
    92,223Less: allowance for doubtful accounts and sales discounts
    
    
    4,965
    
    
    
    6,067Less: allowance for sales returns, net margin impact
    
    
    10,016
    
    
    
    9,350Total
    
    $
    88,528
    
    
    $
    76,806
 11




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Note 8  Prepaid Expenses and Other Assets
  June 30,
    
    
    March 31,2008
    
    
    2008Prepaid royalties
    
    $
    11,986
    
    
    $
    11,297Other
    
    
    1,885
    
    
    
    821Total
    
    $
    13,871
    
    
    $
    12,118
 Note 9 Inventories
  June 30,
    
    
    March 31,2008
    
    
    2008Finished products
    
    $
    33,819
    
    
    $
    23,545Consigned inventory
    
    
    2,264
    
    
    
    2,569Raw materials
    
    
    5,963
    
    
    
    6,540Total
    
    $
    42,046
    
    
    $
    32,654
  Note 10  License Fees
  June 30,
    
    
    March 31,2008
    
    
    2008License fees
    
    $
    42,499
    
    
    $
    40,110Less: accumulated amortization
    
    
    20,647
    
    
    
    19,595Total
    
    $
    21,852
    
    
    $
    20,515
   SOP 00-2
 12




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Note 11  Production Costs
  June 30,
    
    
    March 31,2008
    
    
    2008Production costs
    
    $
    16,334
    
    
    $
    14,755Less: accumulated amortization
    
    
    8,220
    
    
    
    7,439Total
    
    $
    8,114
    
    
    $
    7,316
  Accounting by Producers or Distributors of Films
  Note 12  Property and Equipment
  June 30,
    
    
    March 31,2008
    
    
    2008Furniture and fixtures
    
    $
    1,336
    
    
    $
    1,332Computer and office equipment
    
    
    15,989
    
    
    
    14,944Warehouse equipment
    
    
    9,599
    
    
    
    9,564Production equipment
    
    
    1,071
    
    
    
    917Leasehold improvements
    
    
    2,060
    
    
    
    2,060Construction in progress
    
    
    4,054
    
    
    
    2,848Total
    
    
    34,109
    
    
    
    31,665Less: accumulated depreciation and amortization
    
    
    15,584
    
    
    
    14,484Net property and equipment
    
    $
    18,525
    
    
    $
    17,181
 Note 13  Assets Held for Sale
  13




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Note 14  Intangible Assets
  As of June 30, 2008Gross carrying
    
    
    Accumulatedamount
    
    
    amortization
    
    
    NetMasters
    
    $
    9,687
    
    
    $
    7,084
    
    
    $
    2,603License relationships
    
    
    20,078
    
    
    
    15,296
    
    
    
    4,782Domain name
    
    
    70
    
    
    
    21
    
    
    
    49Other (not amortized)
    
    
    1,568
    
    
    
    
    
    
    
    1,568$
    31,403
    
    
    $
    22,401
    
    
    $
    9,002
 As of March 31, 2008Gross carrying
    
    
    Accumulatedamount
    
    
    amortization
    
    
    NetMasters
    
    $
    9,448
    
    
    $
    6,550
    
    
    $
    2,898License relationships
    
    
    20,078
    
    
    
    14,612
    
    
    
    5,466Domain name
    
    
    70
    
    
    
    18
    
    
    
    52Other (not amortized)
    
    
    1,568
    
    
    
    
    
    
    
    1,568$
    31,164
    
    
    $
    21,180
    
    
    $
    9,984
   Remainder of fiscal 2009
    
    $
    3,6092010
    
    
    2,5722011
    
    
    6862012
    
    
    2422013
    
    
    301Thereafter
    
    
    2
 Debt issuance costs
  Note 15  Accrued Expenses
  June 30,
    
    
    March 31,2008
    
    
    2008Compensation and benefits
    
    $
    2,841
    
    
    $
    3,818Royalties
    
    
    5,752
    
    
    
    7,830Rebates
    
    
    1,886
    
    
    
    1,955Deferred revenue
    
    
    646
    
    
    
    121Interest
    
    
    174
    
    
    
    495Other
    
    
    1,652
    
    
    
    1,899Total
    
    $
    12,951
    
    
    $
    16,118
 14




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Note 16  Bank Financing and Debt
      Letters of Credit
  Note 17  Private Placement
  15




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Note 18  Income Taxes
 Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109
       Note 19  License and Distribution Agreement
  16




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Note 20  Commitments and Contingencies
 Litigation and Proceedings
  SEC Investigation
  Note 21  Related Party Transactions
 Employment/Severance Agreements
   Employment
Agreement  FUNimation
  17




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Note 22  Business Segments
   Publishing
    
    Distribution
    
    
    Eliminations
    
    
    ConsolidatedThree months ended June 30, 2008Net sales
    
    $
    27,418
    
    
    $
    133,095
    
    
    $
    (18,488
    )
    
    $
    142,025Income (loss) from operations
    
    
    3,444
    
    
    
    (691
    )
    
    
    
    
    
    
    2,753Income (loss) from continuing operations, before income tax
    
    
    2,431
    
    
    
    (1,376
    )
    
    
    
    
    
    
    1,055Depreciation and amortization expense
    
    
    1,386
    
    
    
    935
    
    
    
    
    
    
    
    2,321Capital expenditures
    
    
    242
    
    
    
    2,202
    
    
    
    
    
    
    
    2,444Total assets
    
    $
    161,021
    
    
    $
    143,189
    
    
    $
    (1,021
    )
    
    $
    303,189
 Publishing
    
    Distribution
    
    
    Eliminations
    
    
    ConsolidatedThree months ended June 30, 2007Net sales
    
    $
    29,624
    
    
    $
    123,889
    
    
    $
    (16,491
    )
    
    $
    137,022Income (loss) from operations
    
    
    3,030
    
    
    
    1,573
    
    
    
    
    
    
    
    4,603Income from continuing operations, before income tax
    
    
    1,977
    
    
    
    1,243
    
    
    
    
    
    
    
    3,220Depreciation and amortization expense
    
    
    1,534
    
    
    
    684
    
    
    
    
    
    
    
    2,218Capital expenditures
    
    
    108
    
    
    
    2,697
    
    
    
    
    
    
    
    2,805Total assets
    
    $
    155,069
    
    
    $
    235,398
    
    
    $
    (100,459
    )
    
    $
    290,008
 18




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Executive Summary
   Discontinued Operations
    Working Capital and Debt
    19




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##### Table of Contents



Overview
   anime
  Forward-Looking Statements / Important Risk Factors
    20




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##### Table of Contents



anime
  Critical Accounting Policies
  Reconciliation of GAAP Net Sales to Net Sales Before Inter-Company Eliminations
  21




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##### Table of Contents



Three Months EndedJune 30,(Unaudited)(In thousands)
    
    2008
    
    
    2007Net sales:Publishing
    
    $
    27,418
    
    
    $
    29,624Distribution
    
    
    133,095
    
    
    
    123,889Net sales before inter-company eliminations
    
    
    160,513
    
    
    
    153,513Inter-company sales
    
    
    (18,488
    )
    
    
    (16,491
    )Net sales as reported
    
    $
    142,025
    
    
    $
    137,022
 Results of Operations
  Three Months EndedJune 30,(Unaudited)2008
    
    
    2007Net sales:Publishing
    
    
    19.4
    %
    
    
    21.6
    %Distribution
    
    
    93.6
    
    
    
    90.4Inter-company sales
    
    
    (13.0
    )
    
    
    (12.0
    )Total net sales
    
    
    100.0
    
    
    
    100.0Cost of sales, exclusive of amortization and depreciation
    
    
    84.4
    
    
    
    82.5Gross profit
    
    
    15.6
    
    
    
    17.5Operating expensesSelling and marketing
    
    
    4.0
    
    
    
    5.0Distribution and warehousing
    
    
    2.0
    
    
    
    2.0General and administrative
    
    
    6.0
    
    
    
    5.5Depreciation and amortization
    
    
    1.6
    
    
    
    1.6Total operating expenses
    
    
    13.6
    
    
    
    14.1Income from operations
    
    
    2.0
    
    
    
    3.4Interest expense
    
    
    (1.1
    )
    
    
    (1.2
    )Other income (expense), net
    
    
    (0.1
    )
    
    
    0.2Income from continuing operations  before taxes
    
    
    0.8
    
    
    
    2.4Income tax expense
    
    
    (0.3
    )
    
    
    (1.0
    )Net income from continuing operations
    
    
    0.5
    
    
    
    1.4Discontinued operations, net of taxGain on sale of discontinued operations
    
    
    
    
    
    
    3.4Income (loss) from discontinued operations
    
    
    
    
    
    
    (0.8
    )Net income
    
    
    0.5
    %
    
    
    4.0
    %
 22




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##### Table of Contents



Publishing Segment
  Fiscal 2009 First Quarter Results Compared With Fiscal 2008 First Quarter
 Net Sales
 anime
 Gross Profit
  Operating Expenses
      Operating Income
  Distribution Segment
  Fiscal 2009 First Quarter Results Compared With Fiscal 2008 First Quarter
 Net Sales
  23




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##### Table of Contents



Gross Profit
  Operating Expenses
       Operating Income (Loss)
  Consolidated Other Income and Expense
  Consolidated Income Tax Expense from Continuing Operations
  24




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##### Table of Contents



Consolidated Net Income from Continuing Operations
  Discontinued Operations
  Consolidated Net Income
  Market Risk
    Seasonality and Inflation
  Liquidity and Capital Resources
 Operating Activities
  25




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##### Table of Contents



Investing Activities
  Financing Activities
  Discontinued Operations
  Capital Resources
    26




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##### Table of Contents



Liquidity
    Contractual Obligations
  Less
    
    
    
    
    
    
    
    
    
    
    Morethan 1
    
    
    2  3
    
    
    4  5
    
    
    than 5Total
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    YearsOperating leases
    
    $
    26,275
    
    
    $
    2,030
    
    
    $
    5,354
    
    
    $
    5,102
    
    
    $
    13,789Capital leases
    
    
    125
    
    
    
    57
    
    
    
    68
    
    
    
    
    
    
    
    License and distribution agreement
    
    
    25,256
    
    
    
    14,005
    
    
    
    8,501
    
    
    
    2,750
    
    
    
    Deferred compensation
    
    
    4,124
    
    
    
    1,975
    
    
    
    2,149
    
    
    
    
    
    
    
    Total
    
    $
    55,780
    
    
    $
    18,067
    
    
    $
    16,072
    
    
    $
    7,852
    
    
    $
    13,789
  27




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
       
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities
  28




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Securities Holders
  
 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)
 29




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##### Table of Contents



SIGNATURES
  Navarre Corporation
(Registrant)Date: August 5, 2008
    
    /s/ Cary L. Deacon

Cary L. DeaconPresident and Chief Executive Officer(Principal Executive Officer)Date: August 5, 2008
    
    /s/ J. Reid PorterJ. Reid PorterExecutive Vice President and Chief Financial
Officer (Principal Financial and Accounting
Officer)
 30