##### 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 September 30, 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
    
    (IRS Employerincorporation or organization)
    
    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 November 11, 2009Common Stock, No Par Value
    
    36,252,485 shares




---



##### 



NAVARRE CORPORATION
 Index
 PagePART I. FINANCIAL INFORMATION
    
    
    3Item 1. Consolidated Financial Statements. (Unaudited)
    
    
    3Consolidated Balance Sheets  September 30, 2009 and March 31, 2009 (Audited)
    
    
    3Consolidated Statements of Operations  Three and Six Months ended September 30, 2009 and 2008
    
    
    4Consolidated Statements of Cash Flows  Six Months ended September 30, 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
    
    
    33Item 4. Controls and Procedures
    
    
    34PART II. OTHER INFORMATION
    
    
    34Item 1. Legal Proceedings
    
    
    34Item 1A. Risk Factors
    
    
    34Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 3. Defaults Upon Senior Securities
    
    
    34Item 4. Submission of Matters to a Vote of Security Holders
    
    
    34Item 5. Other Information
    
    
    35Item 6. Exhibits
    
    
    35SIGNATURES
    
    
    36EX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Consolidated Financial Statements.
 NAVARRE CORPORATION
 
 Consolidated Balance Sheets
(In thousands, except share amounts)
 September 30,
    
    
    March 31,2009
    
    
    2009(Unaudited)
    
    
    (Note)Assets:Current assets:Marketable securities
    
    $
    1,031
    
    
    $
    1,024Accounts receivable, less allowances of $14,187 and $19,010, respectively
    
    
    61,328
    
    
    
    72,817Inventories
    
    
    31,819
    
    
    
    26,732Prepaid expenses and other current assets
    
    
    11,150
    
    
    
    11,090Income tax receivable
    
    
    325
    
    
    
    4,866Deferred tax assets  current, net
    
    
    3,277
    
    
    
    6,219Total current assets
    
    
    108,930
    
    
    
    122,748Property and equipment, net of accumulated depreciation of $19,104 and $16,704, respectively
    
    
    14,003
    
    
    
    15,957Software development costs, net of amortization of $21 and zero, respectively
    
    
    1,614
    
    
    
    677Other assets:Intangible assets, net of amortization of $26,347 and $25,364, respectively
    
    
    2,403
    
    
    
    3,406License fees, net of amortization of $25,854 and $21,570, respectively
    
    
    16,241
    
    
    
    17,728Production costs, net of amortization of $14,493 and $12,223, respectively
    
    
    9,259
    
    
    
    8,408Deferred tax assets  non-current, net
    
    
    10,125
    
    
    
    10,299Other assets
    
    
    3,557
    
    
    
    3,946Total assets
    
    $
    166,132
    
    
    $
    183,169Liabilities and shareholders equity:Current liabilities:Note payable  line of credit
    
    $
    19,916
    
    
    $
    24,133Capital lease obligation  short term
    
    
    74
    
    
    
    90Accounts payable
    
    
    80,101
    
    
    
    106,708Checks written in excess of cash balance
    
    
    4,683
    
    
    
    297Deferred compensation
    
    
    1,749
    
    
    
    2,149Accrued expenses
    
    
    14,222
    
    
    
    11,504Total current liabilities
    
    
    120,745
    
    
    
    144,881Long-term liabilities:Capital lease obligation  long-term
    
    
    92
    
    
    
    115Income taxes payable
    
    
    1,316
    
    
    
    1,166Total liabilities
    
    
    122,153
    
    
    
    146,162Commitments and contingencies (Note 19)Shareholders equity:Common stock, no par value:Authorized shares  100,000,000; issued and outstanding shares  36,260,116 at
September 30, 2009 and March 31, 2009
    
    
    161,663
    
    
    
    161,134Accumulated deficit
    
    
    (117,685
    )
    
    
    (124,126
    )Accumulated other comprehensive loss
    
    
    1
    
    
    
    (1
    )Total shareholders equity
    
    
    43,979
    
    
    
    37,007Total liabilities and shareholders equity
    
    $
    166,132
    
    
    $
    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




---



##### Table of Contents



NAVARRE CORPORATION
 
 Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    122,411
    
    
    $
    170,296
    
    
    $
    256,717
    
    
    $
    312,321Cost of sales (exclusive of depreciation and amortization)
    
    
    101,544
    
    
    
    146,066
    
    
    
    212,286
    
    
    
    265,965Gross profit
    
    
    20,867
    
    
    
    24,230
    
    
    
    44,431
    
    
    
    46,356Operating expenses:Selling and marketing
    
    
    5,690
    
    
    
    7,206
    
    
    
    10,845
    
    
    
    12,921Distribution and warehousing
    
    
    2,435
    
    
    
    3,046
    
    
    
    4,511
    
    
    
    5,930General and administrative
    
    
    7,249
    
    
    
    8,181
    
    
    
    15,277
    
    
    
    16,634Bad debt expense
    
    
    92
    
    
    
    200
    
    
    
    92
    
    
    
    200Depreciation and amortization
    
    
    1,594
    
    
    
    2,376
    
    
    
    3,383
    
    
    
    4,697Goodwill impairment
    
    
    
    
    
    
    73,412
    
    
    
    
    
    
    
    73,412Total operating expenses
    
    
    17,060
    
    
    
    94,421
    
    
    
    34,108
    
    
    
    113,794Income (loss) from operations
    
    
    3,807
    
    
    
    (70,191
    )
    
    
    10,323
    
    
    
    (67,438
    )Other income (expense):Interest expense
    
    
    (601
    )
    
    
    (833
    )
    
    
    (1,320
    )
    
    
    (2,448
    )Interest income
    
    
    
    
    
    
    14
    
    
    
    7
    
    
    
    29Other income (expense), net
    
    
    364
    
    
    
    (223
    )
    
    
    815
    
    
    
    (321
    )Net income (loss) before income tax
    
    
    3,570
    
    
    
    (71,233
    )
    
    
    9,825
    
    
    
    (70,178
    )Income tax benefit (expense)
    
    
    (1,290
    )
    
    
    26,725
    
    
    
    (3,384
    )
    
    
    26,297Net income (loss)
    
    $
    2,280
    
    
    $
    (44,508
    )
    
    $
    6,441
    
    
    $
    (43,881
    )Earnings (loss) per common share:Basic
    
    $
    0.06
    
    
    $
    (1.23
    )
    
    $
    0.18
    
    
    $
    (1.21
    )Diluted
    
    $
    0.06
    
    
    $
    (1.23
    )
    
    $
    0.18
    
    
    $
    (1.21
    )Weighted average shares outstanding:Basic
    
    
    36,237
    
    
    
    36,191
    
    
    
    36,237
    
    
    
    36,188Diluted
    
    
    36,650
    
    
    
    36,191
    
    
    
    36,530
    
    
    
    36,188
 See accompanying notes to consolidated financial statements.
 4




---



##### Table of Contents



NAVARRE CORPORATION
 
 Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 Six Months EndedSeptember 30,2009
    
    
    2008Operating activities:Net income (loss)
    
    $
    6,441
    
    
    $
    (43,881
    )Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    3,383
    
    
    
    4,697Amortization of debt acquisition costs
    
    
    217
    
    
    
    107Write-off of debt acquisition costs
    
    
    
    
    
    
    490Goodwill impairment
    
    
    
    
    
    
    73,412Amortization of license fees
    
    
    4,284
    
    
    
    1,776Amortization of production costs
    
    
    2,270
    
    
    
    1,625Change in deferred revenue
    
    
    (59
    )
    
    
    617Share-based compensation expense
    
    
    529
    
    
    
    501Deferred income taxes
    
    
    3,116
    
    
    
    (26,458
    )Deferred compensation expense
    
    
    (400
    )
    
    
    (50
    )Other
    
    
    127
    
    
    
    24Changes in operating assets and liabilities:Accounts receivable, net
    
    
    11,489
    
    
    
    (17,883
    )Inventories
    
    
    (5,087
    )
    
    
    (16,978
    )Prepaid expenses
    
    
    (60
    )
    
    
    (2,341
    )Income taxes receivable
    
    
    4,541
    
    
    
    112Other assets
    
    
    307
    
    
    
    487Production costs
    
    
    (3,121
    )
    
    
    (3,525
    )License fees
    
    
    (2,797
    )
    
    
    (7,839
    )Accounts payable
    
    
    (26,607
    )
    
    
    28,260Income taxes payable
    
    
    150
    
    
    
    179Accrued expenses
    
    
    2,777
    
    
    
    (540
    )Net cash provided by (used in) operating activities
    
    
    1,500
    
    
    
    (7,208
    )Investing activities:Purchases of property and equipment
    
    
    (446
    )
    
    
    (3,020
    )Purchases of intangible assets
    
    
    
    
    
    
    (413
    )Software development costs incurred
    
    
    (958
    )
    
    
    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
    
    
    (1,384
    )
    
    
    (426
    )Financing activities:Proceeds from note payable, line of credit
    
    
    112,004
    
    
    
    112,386Payments on note payable, line of credit
    
    
    (116,221
    )
    
    
    (98,103
    )Repayments of note payable
    
    
    
    
    
    
    (9,744
    )Payment of deferred compensation
    
    
    
    
    
    
    (1,654
    )Checks written in excess of cash
    
    
    4,386
    
    
    
    527Debt acquisition costs
    
    
    (246
    )
    
    
    (200
    )Repayments of capital lease obligations
    
    
    (39
    )
    
    
    (35
    )Other
    
    
    
    
    
    
    12Net cash (used in) provided by financing activities
    
    
    (116
    )
    
    
    3,189Net decrease in cash
    
    
    
    
    
    
    (4,445
    )Cash at beginning of period
    
    
    
    
    
    
    4,445Cash at end of period
    
    $
    
    
    
    $
    Supplemental cash flow information:Cash paid for (received from):Interest
    
    $
    1,017
    
    
    $
    2,129Income taxes, net of refunds
    
    
    (4,394
    )
    
    
    (90
    )
 See accompanying notes to consolidated financial statements.
 5




---



##### 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




---



##### Table of Contents



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




---



##### Table of Contents



As of September 30, 2009Gross
    
    
    GrossEstimated fair
    
    
    unrealized
    
    
    unrealizedvalue
    
    
    holding gains
    
    
    holding lossesAvailable-for-sale:Corporate bonds
    
    $
    203
    
    
    $
    1
    
    
    $
    Money market fund
    
    
    828
    
    
    
    
    
    
    
    $
    1,031
    
    
    $
    1
    
    
    $
    
 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
  8




---



##### Table of Contents



Stock Options
  WeightedaverageNumber of
    
    
    exerciseoptions
    
    
    priceOptions outstanding, beginning of period:
    
    
    3,165,528
    
    
    $
    5.74Granted
    
    
    363,000
    
    
    
    1.64Exercised
    
    
    
    
    
    
    Canceled
    
    
    (285,628
    )
    
    
    6.28Options outstanding, end of period
    
    
    3,242,900
    
    
    $
    5.23Options exercisable, end of period
    
    
    1,887,540
    
    
    $
    7.73Shares available for future grant, end of period
    
    
    1,181,000
     Restricted Stock
   Weightedaveragegrant dateShares
    
    
    fair valueUnvested, beginning of period:
    
    
    445,155
    
    
    $
    1.19Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    (5,583
    )
    
    
    1.10Unvested, end of period
    
    
    439,572
    
    
    $
    1.19
   9




---



##### Table of Contents



Restricted Stock Units  Performance Based
  Share-Based Compensation Valuation and Expense Information
  Three Months Ended
    
    Six Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Expected life (in years)
    
    
    5.0
    
    
    
    5.0
    
    
    
    5.0
    
    
    
    5.0Expected volatility
    
    
    74
    %
    
    
    64
    %
    
    
    74
    %
    
    
    64
    %Risk-free interest rate
    
    
    2.33-2.37
    %
    
    
    2.87
    %
    
    
    1.65-2.93
    %
    
    
    2.65-2.87
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
   10




---



##### Table of Contents



Note 4  Earnings (Loss) Per Share
   Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Net income (loss)
    
    $
    2,280
    
    
    $
    (44,508
    )
    
    $
    6,441
    
    
    $
    (43,881
    )Denominator:Denominator for basic earnings (loss) per
shareweighted-average shares
    
    
    36,237
    
    
    
    36,191
    
    
    
    36,237
    
    
    
    36,188Dilutive securities: Employee stock options and warrants
    
    
    413
    
    
    
    
    
    
    
    293
    
    
    
    Denominator for diluted earnings (loss) per
shareadjusted weighted-average shares
    
    
    36,650
    
    
    
    36,191
    
    
    
    36,530
    
    
    
    36,188Net earnings (loss) per share:Basic earnings (loss) per share
    
    $
    0.06
    
    
    $
    (1.23
    )
    
    $
    0.18
    
    
    $
    (1.21
    )Diluted earnings (loss) per share
    
    $
    0.06
    
    
    $
    (1.23
    )
    
    $
    0.18
    
    
    $
    (1.21
    )
   Note 5  Shareholders Equity
   Note 6  Accounts Receivable
  September 30,
    
    
    March 31,2009
    
    
    2009Trade receivables
    
    $
    71,304
    
    
    $
    86,345Vendor receivables
    
    
    2,675
    
    
    
    2,894Other receivables
    
    
    1,536
    
    
    
    2,58875,515
    
    
    
    91,827Less: allowance for doubtful accounts and sales discounts
    
    
    4,791
    
    
    
    7,043Less: allowance for sales returns, net margin impact
    
    
    9,396
    
    
    
    11,967Total
    
    $
    61,328
    
    
    $
    72,817
 11




---



##### Table of Contents



Note 7  Inventories
  September 30,
    
    
    March 31,2009
    
    
    2009Finished products
    
    $
    26,482
    
    
    $
    20,437Consigned inventory
    
    
    1,832
    
    
    
    1,868Raw materials
    
    
    3,505
    
    
    
    4,427Total
    
    $
    31,819
    
    
    $
    26,732
  Note 8  Prepaid Expenses and Other Current Assets
  September 30,
    
    
    March 31,2009
    
    
    2009Prepaid royalties
    
    $
    9,920
    
    
    $
    9,826Other
    
    
    1,230
    
    
    
    1,264Total
    
    $
    11,150
    
    
    $
    11,090
 Note 9  Property and Equipment
  September 30,
    
    
    March 31,2009
    
    
    2009Furniture and fixtures
    
    $
    1,306
    
    
    $
    1,306Computer and office equipment
    
    
    18,123
    
    
    
    17,782Warehouse equipment
    
    
    10,116
    
    
    
    10,116Production equipment
    
    
    1,353
    
    
    
    1,296Leasehold improvements
    
    
    2,087
    
    
    
    2,081Construction in progress
    
    
    122
    
    
    
    80Total
    
    
    33,107
    
    
    
    32,661Less: accumulated depreciation and amortization
    
    
    19,104
    
    
    
    16,704Net property and equipment
    
    $
    14,003
    
    
    $
    15,957
 Note 10  Capitalized Software Development Costs
 Software
 12




---



##### Table of Contents



Note 11  Goodwill and Intangible Assets
 Goodwill
   Intangibles  Goodwill and Other
  Intangible assets
  .
  13




---



##### Table of Contents



As of September 30, 2009Gross carrying
    
    
    Accumulatedamount
    
    
    amortization
    
    
    NetMasters
    
    $
    8,066
    
    
    $
    8,066
    
    
    $
    License relationships
    
    
    20,078
    
    
    
    18,247
    
    
    
    1,831Domain name
    
    
    70
    
    
    
    34
    
    
    
    36Trademarks (not amortized)
    
    
    536
    
    
    
    
    
    
    
    536$
    28,750
    
    
    $
    26,347
    
    
    $
    2,403
 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
   Remainder of fiscal 2010
    
    $
    9032011
    
    
    4252012
    
    
    2372013
    
    
    302Thereafter
    
    
    
 Debt issuance costs
  Note 12  License Fees
  September 30,
    
    
    March 31,2009
    
    
    2009License fees
    
    $
    42,095
    
    
    $
    39,298Less: accumulated amortization
    
    
    25,854
    
    
    
    21,570Total
    
    $
    16,241
    
    
    $
    17,728
    14




---



##### Table of Contents



Note 13  Production Costs
  September 30,
    
    
    March 31,2009
    
    
    2009Production costs
    
    $
    23,752
    
    
    $
    20,631Less: accumulated amortization
    
    
    14,493
    
    
    
    12,223Total
    
    $
    9,259
    
    
    $
    8,408
    Note 14  Assets Held for Sale
  Note 15  Accrued Expenses
  September 30,
    
    
    March 31,2009
    
    
    2009Compensation and benefits
    
    $
    5,374
    
    
    $
    3,263Royalties
    
    
    3,403
    
    
    
    3,056Customer rebates
    
    
    1,962
    
    
    
    1,264Rent
    
    
    1,227
    
    
    
    1,249Deferred revenue
    
    
    244
    
    
    
    303Interest
    
    
    125
    
    
    
    39Other
    
    
    1,887
    
    
    
    2,330Total
    
    $
    14,222
    
    
    $
    11,504
 Note 16  Bank Financing and Debt
   15




---



##### Table of Contents



Letter of Credit
  Note 17  Private Placement Warrants
  Note 18  Income Taxes
 Income Taxes
    16




---



##### Table of Contents



Note 19  Commitments and Contingencies
 Leases
   Remainder of fiscal 2010
    
    $
    1,4632011
    
    
    2,5432012
    
    
    2,5182013
    
    
    2,5162014
    
    
    2,502Thereafter
    
    
    10,198$
    21,740
 Litigation and Proceedings
  SEC Investigation
  17




---



##### Table of Contents



Note 20  Capital Leases
  September 30,
    
    
    March 31,2009
    
    
    2009Computer and office equipment
    
    $
    320
    
    
    $
    314Less: accumulated amortization
    
    
    160
    
    
    
    113Net property and equipment
    
    $
    160
    
    
    $
    201
  Minimum LeaseCommitmentsRemainder of fiscal 2010
    
    $
    542011
    
    
    572012
    
    
    492013
    
    
    24Total minimum lease payments
    
    $
    184Less: amounts representing interest at rates ranging from 6.9% to 31.6%
    
    
    18Present value of minimum capital lease payments, reflected in the
balance sheet as current and noncurrent capital lease obligations of
$74 and $92, respectively
    
    $
    166
 Note 21  Related Party Transactions
 Employment/Severance Agreements
     Employment Agreement  FUNimation
  18




---



##### Table of Contents



Note 22  Business Segments
   Publishing
    
    Distribution
    
    Eliminations
    
    ConsolidatedThree months ended September 30, 2009Net sales
    
    $
    21,431
    
    
    $
    111,336
    
    
    $
    (10,356
    )
    
    $
    122,411Income from operations
    
    
    2,533
    
    
    
    1,274
    
    
    
    
    
    
    
    3,807Net income, before income tax
    
    
    1,922
    
    
    
    1,648
    
    
    
    
    
    
    
    3,570Depreciation and amortization expense
    
    
    617
    
    
    
    977
    
    
    
    
    
    
    
    1,594Capital expenditures
    
    
    38
    
    
    
    167
    
    
    
    
    
    
    
    205Total assets
    
    
    56,845
    
    
    
    115,859
    
    
    
    (6,572
    )
    
    
    166,132
 Publishing
    
    Distribution
    
    Eliminations
    
    ConsolidatedThree months ended September 30, 2008Net sales
    
    $
    28,794
    
    
    $
    158,458
    
    
    $
    (16,956
    )
    
    $
    170,296Income (loss) from operations *
    
    
    (70,305
    )
    
    
    114
    
    
    
    
    
    
    
    (70,191
    )Net income (loss), before income tax *
    
    
    (71,404
    )
    
    
    171
    
    
    
    
    
    
    
    (71,233
    )Depreciation and amortization expense
    
    
    1,399
    
    
    
    977
    
    
    
    
    
    
    
    2,376Capital expenditures
    
    
    149
    
    
    
    427
    
    
    
    
    
    
    
    576Total assets *
    
    
    91,149
    
    
    
    175,931
    
    
    
    1,725
    
    
    
    268,805
 Publishing
    
    Distribution
    
    Eliminations
    
    ConsolidatedSix months ended September 30, 2009Net sales
    
    $
    46,296
    
    
    $
    232,732
    
    
    $
    (22,311
    )
    
    $
    256,717Income from operations
    
    
    8,685
    
    
    
    1,638
    
    
    
    
    
    
    
    10,323Net income, before income tax
    
    
    7,509
    
    
    
    2,316
    
    
    
    
    
    
    
    9,825Depreciation and amortization expense
    
    
    1,349
    
    
    
    2,034
    
    
    
    
    
    
    
    3,383Capital expenditures
    
    
    136
    
    
    
    310
    
    
    
    
    
    
    
    446Total assets
    
    
    56,845
    
    
    
    115,859
    
    
    
    (6,572
    )
    
    
    166,132
 Publishing
    
    Distribution
    
    Eliminations
    
    ConsolidatedSix months ended September 30, 2008Net sales
    
    $
    56,212
    
    
    $
    291,553
    
    
    $
    (35,444
    )
    
    $
    312,321Income (loss) from operations *
    
    
    (66,861
    )
    
    
    (577
    )
    
    
    
    
    
    
    (67,438
    )Net income, before income tax *
    
    
    (68,973
    )
    
    
    (1,205
    )
    
    
    
    
    
    
    (70,178
    )Depreciation and amortization expense
    
    
    2,785
    
    
    
    1,912
    
    
    
    
    
    
    
    4,697Capital expenditures
    
    
    391
    
    
    
    2,629
    
    
    
    
    
    
    
    3,020Total assets *
    
    
    91,149
    
    
    
    175,931
    
    
    
    1,725
    
    
    
    268,805
 
 *
    
    Includes a goodwill impairment charge during the second quarter of fiscal 2009 of $73.4 million
(see further disclosure in Note 11). Note 23  Subsequent Events
  19




---



##### Table of Contents



20




---



##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Overview
   anime
  Executive Summary
      21




---



##### Table of Contents



Goodwill
    22




---



##### Table of Contents



Working Capital and Debt
     Forward-Looking Statements / Risk Factors
   anime
 23




---



##### 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
  24




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,(Unaudited)
    
    
    (Unaudited)2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales:Publishing
    
    $
    21,431
    
    
    $
    28,794
    
    
    $
    46,296
    
    
    $
    56,212Distribution
    
    
    111,336
    
    
    
    158,458
    
    
    
    232,732
    
    
    
    291,553Net sales before inter-company eliminations
    
    
    132,767
    
    
    
    187,252
    
    
    
    279,028
    
    
    
    347,765Inter-company sales
    
    
    (10,356
    )
    
    
    (16,956
    )
    
    
    (22,311
    )
    
    
    (35,444
    )Net sales as reported
    
    $
    122,411
    
    
    $
    170,296
    
    
    $
    256,717
    
    
    $
    312,321
 Results of Operations
  Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,(Unaudited)
    
    
    (Unaudited)2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales:Publishing
    
    
    17.5
    %
    
    
    16.9
    %
    
    
    18.0
    %
    
    
    18.0
    %Distribution
    
    
    91.0
    
    
    
    93.1
    
    
    
    90.7
    
    
    
    93.4Inter-company sales
    
    
    (8.5
    )
    
    
    (10.0
    )
    
    
    (8.7
    )
    
    
    (11.4
    )Total net sales
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of sales, exclusive of
amortization and depreciation
    
    
    83.0
    
    
    
    85.8
    
    
    
    82.7
    
    
    
    85.2Gross profit
    
    
    17.0
    
    
    
    14.2
    
    
    
    17.3
    
    
    
    14.8Operating expensesSelling and marketing
    
    
    4.6
    
    
    
    4.2
    
    
    
    4.2
    
    
    
    4.1Distribution and warehousing
    
    
    2.0
    
    
    
    1.8
    
    
    
    1.8
    
    
    
    1.9General and administrative
    
    
    5.9
    
    
    
    4.8
    
    
    
    6.0
    
    
    
    5.3Bad debt expense
    
    
    0.1
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1Depreciation and amortization
    
    
    1.3
    
    
    
    1.4
    
    
    
    1.3
    
    
    
    1.5Goodwill impairment
    
    
    
    
    
    
    43.1
    
    
    
    
    
    
    
    23.5Total operating expenses
    
    
    13.9
    
    
    
    55.4
    
    
    
    13.3
    
    
    
    36.4Income (loss) from operations
    
    
    3.1
    
    
    
    (41.2
    )
    
    
    4.0
    
    
    
    (21.6
    )Interest expense
    
    
    (0.5
    )
    
    
    (0.5
    )
    
    
    (0.5
    )
    
    
    (0.8
    )Other income (expense), net
    
    
    0.3
    
    
    
    (0.1
    )
    
    
    0.3
    
    
    
    (0.1
    )Net income (loss)  before taxes
    
    
    2.9
    
    
    
    (41.8
    )
    
    
    3.8
    
    
    
    (22.5
    )Income tax benefit (expense)
    
    
    (1.1
    )
    
    
    15.7
    
    
    
    (1.3
    )
    
    
    8.4Net income (loss)
    
    
    1.8
    %
    
    
    (26.1
    )%
    
    
    2.5
    %
    
    
    (14.1
    )%
 Publishing Segment
  Fiscal 2010 Second Quarter Results Compared To Fiscal 2009 Second Quarter
 Net Sales
  25




---



##### Table of Contents



Gross Profit
  Operating Expenses
       Operating Income (Loss)
  Fiscal 2010 Six Months Results Compared With Fiscal 2009 Six Months
 Net Sales
  Gross Profit
  26




---



##### Table of Contents



Operating Expenses
       Operating Income (Loss)
  Distribution Segment
  Fiscal 2010 Second Quarter Results Compared To Fiscal 2009 Second Quarter
 Net Sales
  27




---



##### Table of Contents



Gross Profit
  Operating Expenses
       Operating Income
  Fiscal 2010 Six Months Results Compared With Fiscal 2009 Six Months
 Net Sales
  28




---



##### Table of Contents



Gross Profit
  Operating Expenses
       Operating Income (Loss)
  Consolidated Other Income and Expense
   29




---



##### Table of Contents



Consolidated Income Tax Expense
    Consolidated Net Income (Loss)
  Market Risk
    30




---



##### Table of Contents



Seasonality and Inflation
  Liquidity and Capital Resources
 Cash Flow Analysis
 Operating Activities
    Investing Activities
      Financing Activities
  31




---



##### Table of Contents



Capital Resources
        32




---



##### Table of Contents



Liquidity
    Contractual Obligations
  Less
    
    
    
    
    
    
    
    
    
    
    Morethan 1
    
    
    1  3
    
    
    3  5
    
    
    than 5Total
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    YearsOperating leases
    
    $
    22,895
    
    
    $
    1,442
    
    
    $
    5,083
    
    
    $
    5,200
    
    
    $
    11,170Capital leases
    
    
    184
    
    
    
    54
    
    
    
    106
    
    
    
    24
    
    
    
    License and distribution agreement
    
    
    12,893
    
    
    
    4,988
    
    
    
    6,705
    
    
    
    1,200
    
    
    
    Deferred compensation
    
    
    1,749
    
    
    
    1,749
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    37,721
    
    
    $
    8,233
    
    
    $
    11,894
    
    
    $
    6,424
    
    
    $
    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
 33




---



##### Table of Contents



Item 4. Controls and Procedures
      
 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
   Names
    
    Votes For
    
    
    Votes WithheldDeborah L. Hopp
    
    
    31,318,772
    
    
    
    1,462,308David F. Dalvey
    
    
    31,231,899
    
    
    
    1,549,181Frederick C. Green IV
    
    
    31,232,557
    
    
    
    1,548,523
 34




---



##### Table of Contents



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)
 35




---



##### Table of Contents



SIGNATURES
  Navarre Corporation
(Registrant)Date: November 13, 2009
    /s/ Cary L. DeaconCary L. DeaconPresident and Chief Executive Officer
(Principal Executive Officer)Date: November 13, 2009
    /s/ J. Reid PorterJ. Reid PorterExecutive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) 36