##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended March 31, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 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
  Title of each class
    
    Name of each exchange on which registeredCommon Stock, No par value
    
    The NASDAQ Global Market
 None
 o þ
 o þ
 þ o
 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
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



NAVARRE CORPORATION
FORM 10-K
 TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    12Item 1B.
    
    Unresolved Staff Comments
    
    
    23Item 2.
    
    Properties
    
    
    23Item 3.
    
    Legal Proceedings
    
    
    24Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    24PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    24Item 6.
    
    Selected Financial Data
    
    
    26Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    27Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    45Item 8.
    
    Financial Statements and Supplementary Data
    
    
    46Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    46Item 9A.
    
    Controls and Procedures
    
    
    46Item 9B.
    
    Other Information
    
    
    47PART IIIItem 10.
    
    Directors, Executive Officers, and Corporate Governance
    
    
    48Item 11.
    
    Executive Compensation
    
    
    48Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    48Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    48Item 14.
    
    Principal Accounting Fees and Services
    
    
    48PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    49Signatures
    
    
    55EX-10.22EX-10.23EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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PART I
 
 Item 1  Business
 Overview
   Information About Our Segments
  Publishing Print Shop, Print Master, Mavis Beacon Teaches Typing,
Family Tree Maker, Diner Dash, Monopoly, Scrabble, Wheel of Fortune, Panda Securities Hoyle PC
Gaming anim Dragon Ball Z, Fullmetal
Alchemist, Trinity Blood, Samurai 7, Afro Samurai, Black Blood Brothers, Claymore, D. Gray-man,
Darker Than Black, One Piece, Shin Chan, Robotech The Shadow Chronicles.
 Distribution.
  3




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Business Strategy
  
    
    Acquisitions of Attractive Content.We seek to continue to expand our publishing
business through the development or licensing of well-established titles or other
attractive content. We believe these acquisitions and/or licenses will help position us to
increase our net sales in our publishing business, which historically has had higher
margins than our distribution business, and will allow us to distribute additional home
entertainment and multimedia content through our distribution business. In addition, we
believe that by allowing the management of these publishing companies to focus on content
licensing and marketing rather than on distribution operations, they will be able to devote
more time and greater resources to their core competency, publishing. We believe that
leveraging the core assets and strengths of our distribution business will provide broader
retail penetration, distribution expertise and other services for our content and increase
sales of our publishing products.
    
    Distribute a Broader Range and Larger Volume of Products.We seek to distribute a
broader range and larger volume of home entertainment and multimedia products to our retail
customers by providing a broad selection of products and capitalizing on our customer
relationships. We seek to capture additional business from new and existing retail
customers by providing them with a lower all-in cost of procuring merchandise and getting
product to retailers shelves through efficient distribution. We expect that providing
additional products to retailers will enable us to gain category management opportunities
and enhance our reputation for product distribution expertise. We believe our strategic
account associates located throughout the United States and Canada will help position us to
improve the retail penetration of our published products to new and existing retail
customers.
    
    Integrating Our Technology and Systems with Retailers and Vendors.We seek to enhance
the link in the supply chain between us and our vendors and retail customers through the
integration of our respective information and technology systems, including inventory
management tools, replenishment systems and point-of-sale information. We believe this
integration will lead to better in-stock levels of product, improved on-time arrivals of
product to the customer, enhanced inventory management and lower return rates for our
customers, thereby strengthening customer relationships.
    
    Providing Value-Added Services.Due to increasing retailer logistic needs and demands
and the current economic environment, we believe many publishers will continue to decide
whether to spend additional resources to update their distribution capabilities or to
select a distributor, such as us, who intends to offer such services. We believe
implementing and offering efficiencies and technological improvements should position us to
capture additional business from existing and new publishers.
  4




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Competitive Strengths
  
    
    Value-Added Services.We offer a wide range of distribution services and procurement
solutions intended to capitalize on our broad understanding of the products we distribute,
the procurement process and the supply chain, as well as our logistics expertise and
systems capabilities. We believe our distribution infrastructure enables us to provide
customized procurement programs for our retail customers at a lower overall cost than many
of our competitors. In addition, we believe our information technology systems provide
cost-effective interfacing with our customers information technology systems, supporting
integration of the procurement process. We believe our focus on providing customer-specific
and cost-effective solutions is a key benefit that we provide to our retail customers.
    
    Broad Product Offering.We provide our retail customers with a broad selection of home
entertainment and multimedia products that we believe allows us to better serve their home
entertainment and multimedia product requirements. In addition, we regularly survey the
markets we serve for new products with significant retail potential, that come from
publishers we currently have relationships with as well as from those for which we have not
distributed previously.
    
    Established Content in our Publishing Business.We currently license a number of
well-known home entertainment and multimedia titles. Encore publishes leading titles in the
personal productivity, education, family entertainment and system utilities software
categories, including Print Shop, Print Master, Family Tree Maker, Mavis Beacon Teaches
Typing, Monopoly, Wheel of Fortune, Diner Dash, Panda Securitiesand Hoyle PC Gaming
products. Through FUNimation we also license and distribute a portfolio of established
animetitles in the United States, including Dragon Ball Z, Fullmetal Alchemist, Trinity
Blood, Samurai 7, Afro Samurai, One Piece, Shin Chanand Robotech The Shadow Chronicles.
FUNimation also distributes live action films such as Shinobi, Genghis Khan, Love and Honor
and Hana.
    
    Established Relationships with Publishers and Retailers.Since our founding in 1983, we
have established distribution relationships with major retailers including Best Buy,
Wal-Mart/Sams Club, Target, Staples and Costco Wholesale Corporation, and we distribute to
more than 19,000 retail and distribution center locations throughout the United States and
Canada. We believe our strong relationships throughout the supply chain, broad product
offering and our distribution facility permit us to offer our products to our retail
customers and provide access to a retail channel for publishers of these products. We
believe our relationships with leading publishers and our efficient distribution of their
products should provide opportunities for us to secure distribution rights to leading
products in the future. We believe these relationships give us a competitive advantage in
the markets in which we operate and provide us with attractive channels to distribute
current and future products offered by our publishing business.
    
    Efficient Operations and Operating Leverage.We believe our competitive position is
enhanced by the extensive use of automation and technology in our distribution facility and
our enterprise resource planning (ERP) system which is anticipated to further enhance the
efficiency of our operations. We also utilize centralized purchasing, accounting and
information systems and economies of scale to maintain efficient operations. The location
and size of our warehouse facility adjacent to our corporate headquarters provides us with
the ability to efficiently service our vendors and retail customers, and the capacity to
increase the number of products we distribute.
 5




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Distribution Markets
 PC Software
    Video Games Software and Accessories
   Home Video
  th
 Independent Label Music
  6




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Customers
 www.navarre.com Navarres Distribution Business
Model-E-Commerce
  Navarres Publishing Business Model
 anime
 Encore
 Print Shop, Print Master,
Family Tree Maker, Mavis Beacon Teaches Typing, Monopoly, Scrabble, Wheel of Fortune, Diner Dash,
Panda Securities Hoyle PC Gaming .
   Broderbund, Panda Hoyle
 FUNimation
 anime Dragon Ball Z, Fullmetal Alchemist, Trinity
Blood, Samurai 7, Basilisk, Yu Yu Hakusho, Negima, Afro Samurai, Shin Chan, Black Blood Brothers,
Claymore, Darker Than Black, Robotech The Shadow Chronicles.
 7




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anime anime anime
 Home Video Distribution
 Broadcast anime
 Licensing and Merchandising
 Retail Sales and Web Sites anime ,
 BCI
  Navarres Distribution Business Model
 Vendor Relationships
   Retail Services
  8




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Warehouse Systems
  E-Commerce
 www.navarre.com
 Competition
    Backlog
  Environmental Matters
  9




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Employees
  Capital Resources  Financing
 Managements Discussion and Analysis of Financial
Condition and Results of Operations  Liquidity and Capital Resources.
 Available Information
 www.navarre.com http://www.sec.gov
 10




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Executive Officers of the Company
  Name
    
    Age
    
    PositionCary L. Deacon
    
    
    57
    
    
    President and Chief Executive OfficerJ. Reid Porter
    
    
    60
    
    
    Executive Vice President, Chief Financial OfficerJoyce Fleck
    
    
    56
    
    
    President of Navarre DistributionCalvin Morrell
    
    
    53
    
    
    President of EncoreGen Fukunaga
    
    
    48
    
    
    Chief Executive Officer and President of FUNimationJohn Turner
    
    
    55
    
    
    Senior Vice President of Global LogisticsRyan F. Urness
    
    
    37
    
    
    General Counsel and Secretary
 Cary L. Deacon
 J. Reid Porter
 Joyce Fleck
 Calvin Morrell
 Gen Fukunaga
 John Turner
 Ryan F. Urness
 11




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Item 1A  Risk Factors
 FORWARD-LOOKING STATEMENTS / RISK FACTORS
    12




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Risks Relating To Our Business And Industry
 We derive a substantial portion of our total net sales from two customers. A reduction in sales to
either of these customers, or another significant customer, could have a material adverse effect on
our net sales and profitability.
  The loss of a significant vendor or manufacturer or a decline in the popularity of its products
could negatively affect our product offerings and reduce our net sales and profitability.
   Pending SEC investigation or litigation may subject us to significant costs, judgments or penalties
and could divert managements attention.
  13




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Our revenues are dependent on consumer preferences and demand, which can change at any time.
 anime
 
    
    any of the current properties, product concepts or programming will continue to be
popular for any significant period of time;
    
    any new properties, product concepts or programming will achieve commercial acceptance;
or
    
    any propertys life cycle will be sufficient to permit adequate profitably to recover
advance payments, guarantees, development, marketing, royalties and other costs.
  A continued deterioration in the businesses of significant customers, due to weak economic
conditions, could harm our business.
  
    
    the credit available to our customers;
    
    the popularity of our products released during the quarter;
    
    product marketing and promotional activities;
    
    the opening and closing of retail stores by our major customers;
    
    the extension, termination or non-renewal of existing distribution agreements and
licenses; and
    
    general economic changes affecting the buying pattern of retailers, particularly those
changes affecting consumer demand for home entertainment products and PC software.
  Our business is seasonal and variable in nature and, as a result, the level of sales during our
peak season could adversely affect our results of operations and liquidity.
  14




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A substantial portion of FUNimations revenues are derived from a small number of licensed
properties and a small number of licensors and FUNimations content is highly concentrated in the anime genre.
 anime
  FUNimations revenues are substantially dependent on television exposure for its licensed
properties.
 anime
 Technology developments, particularly in the electronic downloading arena, may adversely affect our
net sales, margins and results of operations.
  Increased counterfeiting or piracy may negatively affect the demand for our home entertainment
products.
  15




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We may not be able to successfully protect our intellectual property rights.
  The loss of key personnel could affect the depth, quality and effectiveness of our management team.
In addition, if we fail to attract and retain qualified personnel, the depth, quality and
effectiveness of our management team and employees could be negatively affected.
   If we fail to meet our significant working capital requirements or if our working capital
requirements increase substantially, our business and prospects could be adversely affected.
   Product returns or inventory obsolescence could reduce our sales and profitability or negatively
impact our liquidity.
  16




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We are subject to the risk that our inventory values may decline due to, among other things,
changes in demand and that protective terms under our supplier agreements may not adequately cover
the decline in values, which could result in lower gross margins or inventory write-downs.
    Further impairment in the carrying value of our assets could negatively affect our consolidated
results of operations and net worth.
  We have significant credit exposure and negative product demand trends or other factors could cause
us significant credit loss.
   We may not be able to adequately adjust our cost structure in a timely fashion in response to a
decrease in net sales, which may cause our profitability to suffer.
  17




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Our distribution and publishing businesses operate in highly competitive industries and compete
with large national firms. Further competition, among other things, could reduce our sales volume
and margins.
   anime anime
  We depend on third party shipping and fulfillment companies for the delivery of our products.
  We depend on a variety of systems for our operations, and a failure of these systems could disrupt
our business and harm our reputation and net sales and negatively impact our results of operations.
   18




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Any future acquisitions could result in disruptions to our business by, among other things,
distracting management time and diverting financial resources. Further, if we are unsuccessful in
integrating acquired companies into our business, it could materially and adversely affect our
financial condition and operating results.
  Interruption of our business or catastrophic loss at any of our facilities could lead to a
curtailment or shutdown of our business.
  19




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Future terrorist or military actions could result in disruption to our operations or loss of
assets.
  Risks Relating to Indebtedness
 The level of our indebtedness could adversely affect our financial condition.
   
    
    make it more difficult for us to satisfy our obligations with respect to other
indebtedness;
    
    increase our vulnerability to adverse economic and industry conditions;
    
    require us to dedicate a substantial portion of our cash flow from operations to the
payment of our indebtedness, thereby reducing the availability of cash to fund working
capital and capital expenditures and for other general corporate purposes;
    
    restrict us from acquiring new content, exploring other business opportunities or
strategic acquisitions;
    
    limit our ability to obtain financing for working capital, capital expenditures,
general corporate purposes or acquisitions;
    
    place us at a disadvantage compared to our competitors that have less indebtedness; and
    
    limit our flexibility in planning for, or reacting to, changes in our business and
industry.
 Our outstanding indebtedness bears interest at variable rates. Any increase in interest rates will
reduce funds available to us for our operations and future business opportunities and could
adversely affect our leveraged capital structure.
  We may be unable to generate sufficient cash flow to service our debt obligations.
   20




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
    
    our financial condition at the time;
    
    restrictions in our credit agreement or other outstanding indebtedness; and
    
    other factors, including the condition of the financial markets or the distribution and
publishing markets.
  We may be able to incur additional indebtedness, which could further exacerbate the risks
associated with our current indebtedness level.
  Our credit agreement contains significant restrictions that limit our operating and financial
flexibility.
  21




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Risks Relating to Our Common Stock
 Our common stock price has been volatile. Fluctuations in our stock price could impair our ability
to raise capital and make an investment in our securities undesirable.
  If we fail to meet the Nasdaq Global Market listing requirements, our common stock could be
delisted.
  The exercise of outstanding warrants and options may adversely affect our stock price.
  Our anti-takeover provisions, our ability to issue preferred stock and our staggered board may
discourage takeover attempts that could be beneficial for our shareholders.
   22




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We currently do not intend to pay dividends on our common stock and, consequently, there will be no
opportunity for our shareholders to achieve a return on their investment through dividend payments.
  Our directors may not be held personally liable for certain actions, which could discourage
shareholder suits against them.
  Other Risks
   
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
 Publishing
   23




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Distribution
    
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
  
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 Common Stock
  Quarter
    
    High
    
    LowFiscal 2009
    
    First
    
    $
    1.87
    
    
    $
    1.48Second
    
    
    1.79
    
    
    
    1.41Third
    
    
    1.45
    
    
    
    0.38Fourth
    
    
    0.57
    
    
    
    0.34Fiscal 2008
    
    First
    
    
    4.45
    
    
    
    3.78Second
    
    
    4.10
    
    
    
    3.62Third
    
    
    3.90
    
    
    
    2.02Fourth
    
    
    2.00
    
    
    
    1.57
 Holders
  Dividend Policy
  Comparative Stock Performance
  24




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COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
 
 
 *
    
    $100 invested on 3/31/04 in stock or index-including reinvestment of dividends.Fiscal year ending March 31. 3/04
    
    
    3/05
    
    
    3/06
    
    
    3/07
    
    
    3/08
    
    
    3/09Navarre Corporation
    
    
    $
    100.00
    
    
    
    $
    134.06
    
    
    
    $
    72.34
    
    
    
    $
    63.24
    
    
    
    $
    29.68
    
    
    
    $
    7.42NASDAQ Composite
    
    
    $
    100.00
    
    
    
    $
    101.44
    
    
    
    $
    120.49
    
    
    
    $
    127.08
    
    
    
    $
    118.90
    
    
    
    $
    78.48Peer Group
    
    
    $
    100.00
    
    
    
    $
    94.05
    
    
    
    $
    90.69
    
    
    
    $
    89.48
    
    
    
    $
    81.66
    
    
    
    $
    49.74
 Source: Research Data Group, Inc.
 Purchases of Equity Securities
  Equity Compensation Plan Information
  25




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Weighted-average
    
    
    Number of securitiesexercise
    
    
    remaining available forNumber of securities to be
    
    
    price of
    
    
    future issuance under equityissued upon exercise of
    
    
    outstanding
    
    
    compensation plansoutstanding options,
    
    
    options,
    
    
    (excluding securitieswarrants and rights
    
    
    warrants and rights
    
    
    reflected in column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    5,206,684
    
    
    $
    5.74
    
    
    
    1,334,672Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    5,206,684
    
    
    $
    5.74
    
    
    
    1,334,672
 
 Item 6. Selected Financial Data
 Financial
Statements and Supplementary Data Managements Discussion and
Analysis of Financial Condition and Results of Operations
  Fiscal Years ended March 31,2009
    
    
    2008
    
    
    2007
    
    
    2006(1)
    
    
    2005Statement of operations data (2):Net sales
    
    $
    630,991
    
    
    $
    658,472
    
    
    $
    644,790
    
    
    $
    615,557
    
    
    $
    532,249Gross profit, exclusive of depreciation and
amortization
    
    
    67,047
    
    
    
    101,559
    
    
    
    107,357
    
    
    
    101,425
    
    
    
    81,915Income (loss) from operations
    
    
    (97,118
    )
    
    
    17,831
    
    
    
    16,362
    
    
    
    6,767
    
    
    
    9,494Interest expense
    
    
    (4,630
    )
    
    
    (6,127
    )
    
    
    (10,220
    )
    
    
    (11,217
    )
    
    
    (783
    )Other income (expense)
    
    
    (1,169
    )
    
    
    625
    
    
    
    56
    
    
    
    2,764
    
    
    
    (138
    )Income (loss) from continuing operations
    
    
    (102,917
    )
    
    
    12,329
    
    
    
    6,198
    
    
    
    (1,686
    )
    
    
    8,573Income tax benefit (expense)
    
    
    14,483
    
    
    
    (5,273
    )
    
    
    (2,594
    )
    
    
    654
    
    
    
    942Net income (loss) from continuing operations
    
    
    (88,434
    )
    
    
    7,056
    
    
    
    3,604
    
    
    
    (1,032
    )
    
    
    9,515Gain on sale of discontinued operations
    
    
    
    
    
    
    4,892
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) from discontinued operations
    
    
    
    
    
    
    (2,290
    )
    
    
    455
    
    
    
    (2,143
    )
    
    
    651Net income (loss)
    
    $
    (88,434
    )
    
    $
    9,658
    
    
    $
    4,059
    
    
    $
    (3,175
    )
    
    $
    10,166Basic earnings (loss) per common share:Continuing operations
    
    $
    (2.44
    )
    
    $
    .20
    
    
    $
    .10
    
    
    $
    (.04
    )
    
    $
    .36Discontinued operations
    
    
    
    
    
    
    .07
    
    
    
    .01
    
    
    
    (.07
    )
    
    
    .02Net income (loss)
    
    $
    (2.44
    )
    
    $
    .27
    
    
    $
    .11
    
    
    $
    (.11
    )
    
    $
    .38Diluted earnings (loss) per common share:Continuing operations
    
    $
    (2.44
    )
    
    $
    .20
    
    
    $
    .10
    
    
    $
    (.04
    )
    
    $
    .33Discontinued operations
    
    
    
    
    
    
    .07
    
    
    
    .01
    
    
    
    (.07
    )
    
    
    .02Net income (loss)
    
    $
    (2.44
    )
    
    $
    .27
    
    
    $
    .11
    
    
    $
    (.11
    )
    
    $
    .35Weighted average shares outstanding:Basic
    
    
    36,207
    
    
    
    36,105
    
    
    
    35,786
    
    
    
    29,898
    
    
    
    26,830Diluted
    
    
    36,207
    
    
    
    36,269
    
    
    
    36,228
    
    
    
    29,898
    
    
    
    28,782Balance sheet data:Total assets
    
    $
    183,169
    
    
    $
    283,462
    
    
    $
    288,225
    
    
    $
    309,614
    
    
    $
    195,892Short-term debt
    
    
    24,133
    
    
    
    31,523
    
    
    
    39,208
    
    
    
    5,115
    
    
    
    334Long-term debt
    
    
    
    
    
    
    9,654
    
    
    
    14,970
    
    
    
    75,352
    
    
    
    237Temporary equity  Unregistered common
stock (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,634
    
    
    
    Shareholders equity
    
    
    37,007
    
    
    
    124,411
    
    
    
    113,451
    
    
    
    88,906
    
    
    
    77,284
 
 (1)
    
    Includes acquisition of FUNimation from date of acquisition  May 11, 2005.(2)
    
    All periods have been restated for discontinued operations.(3)
    
    See Note 21 to the consolidated financial statements. 26




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
    Publishing Print Shop, Print Master, Mavis Beacon Teaches Typing, Family Tree Maker, Diner
Dash, Monopoly, Scrabble, Wheel of Fortune, Panda Securities Hoyle PC Gaming anime Dragon Ball Z, Fullmetal Alchemist, Trinity
Blood, Samurai 7, Afro Samurai, Black Blood Brothers, Claymore, D. Gray-man, Darker Than Black, One
Piece, Shin Chan Robotech The Shadow Chronicles.
 Distribution.
  Overall Summary of Fiscal 2009 Financial Results
  27




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
    
    BCI began winding down its licensing operations related to budget DVD video. For
the year ended March 31, 2009, we recorded impairment and other charges of $25.9 million
in connection with these activities.
    
    FUNimation is no longer involved in licensing operations related to DVD video of
childrens properties. For the year ended March 31, 2009, we recorded $81.0 million in
impairment and other charges, which included $8.2 million for license fees and
production costs, $71.2 million for goodwill (see further disclosure in Note 3), $1.0
million for trademarks and $555,000 for inventory.
    
    
    impairment and other charges of $16.4 million related to accounts receivable
reserves, inventory and prepaid royalties associated with the BCI restructuring;
    
    impairment and other charges of $8.8 million related to license advances, production
costs and inventory associated with the FUNimation restructuring; and
    
    decreased sales volume.
      28




---



##### Table of Contents



Discontinued Operations
 Accounting for the Impairment of Disposal of Long-Lived Assets
    Working Capital and Debt
  Critical Accounting Policies and Estimates
   29




---



##### Table of Contents



Revenue Recognition
    Accounting by
Producers or Distributors of Films.
 Production Costs and License Fees  FUNimation
    SOP 00-2
 30




---



##### Table of Contents



Allowance for Doubtful Accounts
  Goodwill and Intangible Assets
  Goodwill
and Other Intangible Assets
 Impairment of Long-Lived Assets
 Goodwill and Other Intangible Assets Accounting
by Producers or Distributors of Films
 Inventory Valuation
  31




---



##### Table of Contents



Share-Based Compensation
 Accounting for Stock Issued to Employees
  Income Taxes
  Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109
 32




---



##### Table of Contents



Contingencies and Litigation
  Recently Issued Accounting Pronouncements
 Fair
Value Measurements
 The Fair Value Option for
Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115
 Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51
 Business
Combinations
 33




---



##### Table of Contents




    
    Acquisition costs will generally be expensed as incurred;
    
    Noncontrolling interests (formerly known as minority interests)will be valued at fair
value at the acquisition date;
    
    Acquired contingent liabilities will be recorded at fair value at the acquisition date
and subsequently measured at either the higher of such amount or the amount determined
under existing guidance for non-acquired contingencies;
    
    In-process research and development will be recorded at fair value as an
indefinite-lived intangible asset at the acquisition date;
    
    Restructuring costs associated with a business combination will be generally expensed
subsequent to the acquisition date; and
    
    Changes in deferred tax asset valuation allowances and income tax uncertainties after
the acquisition date generally will affect income tax expense.
  Disclosures about Derivative Instruments and
Hedging Activities, an amendment of SFAS No. 133
 The
Hierarchy of Generally Accepted Accounting Principles
 Subsequent Events
 34




---



##### Table of Contents



Reconciliation of GAAP Net Sales to Net Sales Before Inter-Company Eliminations
   Year Ended(Unaudited)
    
    March 31,
    
    
    March 31,
    
    
    March 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007Net salesPublishing
    
    $
    102,828
    
    
    $
    117,423
    
    
    $
    126,651Distribution
    
    
    592,893
    
    
    
    611,007
    
    
    
    587,881Net sales before inter-company eliminations
    
    
    695,721
    
    
    
    728,430
    
    
    
    714,532Inter-company sales
    
    
    (64,730
    )
    
    
    (69,958
    )
    
    
    (69,742
    )Net sales as reported
    
    $
    630,991
    
    
    $
    658,472
    
    
    $
    644,790
 35




---



##### Table of Contents



Results of Operations
 Consolidated Statements of Operations
 Fiscal Years Ended March 31,2009
    
    
    2008
    
    
    2007Net sales:Publishing
    
    
    16.3
    %
    
    
    17.8
    %
    
    
    19.6
    %Distribution
    
    
    94.0
    
    
    
    92.8
    
    
    
    91.2Inter-company sales
    
    
    (10.3
    )
    
    
    (10.6
    )
    
    
    (10.8
    )Total net sales
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of sales, exclusive of depreciation and amortization
    
    
    89.4
    
    
    
    84.6
    
    
    
    83.4Gross profit
    
    
    10.6
    
    
    
    15.4
    
    
    
    16.6Operating ExpensesSelling and marketing
    
    
    4.0
    
    
    
    4.2
    
    
    
    4.4Distribution and warehousing
    
    
    1.9
    
    
    
    1.9
    
    
    
    1.9General and administrative
    
    
    5.2
    
    
    
    5.2
    
    
    
    5.5Bad debt
    
    
    
    
    
    
    
    
    
    
    0.6Depreciation and amortization
    
    
    1.8
    
    
    
    1.4
    
    
    
    1.7Goodwill and intangible impairment
    
    
    13.1
    
    
    
    
    
    
    
    Total operating expenses
    
    
    26.0
    
    
    
    12.7
    
    
    
    14.1Income (loss) from operations
    
    
    (15.4
    )
    
    
    2.7
    
    
    
    2.5Interest expense
    
    
    (0.7
    )
    
    
    (0.9
    )
    
    
    (1.6
    )Interest income
    
    
    
    
    
    
    
    
    
    
    0.1Other income (expense), net
    
    
    (0.2
    )
    
    
    0.1
    
    
    
    Income (loss) from continuing operations  before taxes
    
    
    (16.3
    )
    
    
    1.9
    
    
    
    1.0Income tax benefit (expense)
    
    
    2.3
    
    
    
    (0.8
    )
    
    
    (0.4
    )Net income (loss) from continuing operations
    
    
    (14.0
    )
    
    
    1.1
    
    
    
    0.6Discontinued operations, net of taxGain on sale of discontinued operations
    
    
    
    
    
    
    0.7
    
    
    
    Loss from discontinued operations
    
    
    
    
    
    
    (0.3
    )
    
    
    Net income (loss)
    
    
    (14.0
    )%
    
    
    1.5
    %
    
    
    0.6
    %
 Business  Forward-Looking Statements/Risk Factors
 Publishing Segment
  Fiscal 2009 Results Compared With Fiscal 2008
 Net Sales
  36




---



##### Table of Contents



Gross Profit
  Operating Expenses
       Operating Income (Loss)
  Fiscal 2008 Results Compared With Fiscal 2007
 Net Sales
  37




---



##### Table of Contents



anime Afro Samurai,
Fullmetal Alchemist, Witchblade, Dragon Ball Z
 Gross Profit
  Operating Expenses
      Operating Income
  Distribution Segment
  Fiscal 2009 Results Compared With Fiscal 2008
 Net Sales
  38




---



##### Table of Contents



Gross Profit
  Operating Expenses
       Operating Income
  Fiscal 2008 Results Compared With Fiscal 2007
 Net Sales
  39




---



##### Table of Contents



Gross Profit
  Operating Expenses
       Operating Income
  Consolidated Other Income and Expense for All Periods
   40




---



##### Table of Contents



Consolidated Income Tax Expense or Benefit from Continuing Operations for All Periods
    Consolidated Net (Loss) Income from Continuing Operations
  Discontinued Operations
  Consolidated Net (Loss) Income for All Periods
  Market Risk
 Quantitative and Qualitative Disclosure
About Market Risk
 41




---



##### Table of Contents



Seasonality and Inflation
  Liquidity and Capital Resources
 Cash Flow Analysis
 Operating Activities
     42




---



##### Table of Contents



Investing Activities
      Financing Activities
     Discontinued Operations
  Capital Resources
  43




---



##### Table of Contents



Liquidity
  44




---



##### Table of Contents



Contractual Obligations
  Less than 1
    
    
    1  3
    
    
    3  5
    
    
    More than 5Total
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    YearsOperating leases
    
    $
    24,278
    
    
    $
    2,868
    
    
    $
    5,053
    
    
    $
    5,187
    
    
    $
    11,170Capital leases
    
    
    231
    
    
    
    106
    
    
    
    102
    
    
    
    23
    
    
    
    License and distribution agreements
    
    
    14,097
    
    
    
    10,099
    
    
    
    2,798
    
    
    
    1,200
    
    
    
    Deferred compensation
    
    
    2,149
    
    
    
    2,149
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    40,755
    
    
    $
    15,222
    
    
    $
    7,953
    
    
    $
    6,410
    
    
    $
    11,170
  
 Item 7A  Quantitative and Qualitative Disclosures About Market Risk
 Market Risk.
 Interest Rate Risk.
 Foreign Currency Risk
  45




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data
          
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   46




---



##### Table of Contents



Managements Report on Internal Control over Financial Reporting
  (i.)
    
    pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of an issuers assets;(ii.)
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that an issuers receipts
and expenditures are being made only in accordance with authorizations of its management
and directors; and(iii.)
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of an issuers assets that could have a material effect on
the consolidated financial statements.
  Internal Control  Integrated Framework
  (c) Changes in Internal Control over Financial Reporting
  
 Item 9B. Other Information
  47




---



##### Table of Contents



PART III
 
 Item 10. Directors, Executive Officers of the Registrant and Corporate Governance
  Executive Officers of the Company
    
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accounting Fees and Services
  48




---



##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
  (1)
    
    Financial Statements. Our following consolidated financial statements and the
Reports of Independent Registered Public Accounting Firm thereon are set forth at the end of
this document:
 (i)
    
    Reports of Independent Registered Public Accounting Firm.(ii)
    
    Consolidated Balance Sheets as of March 31, 2009 and 2008.(iii)
    
    Consolidated Statements of Operations for the years ended March 31, 2009, 2008
and 2007(iv)
    
    Consolidated Statements of Shareholders Equity and Comprehensive Income (Loss)
for the years ended March 31, 2007, 2008 and 2009.(v)
    
    Consolidated Statements of Cash Flows for the years ended March 31, 2009, 2008
and 2007.(vi)
    
    Notes to Consolidated Financial Statements
 Financial Statement Schedules
 (i)
    
    Schedule II  Valuation and Qualifying Accounts and ReservesSchedules other than those listed above have been omitted because they are inapplicable
or the required information is either immaterial or shown in the Consolidated Financial
Statements or the notes thereto.
 Exhibit Listing
 Incorporated by referenceExhibit
    
    
    
    Filed
    
    
    
    Period
    
    
    
    
    
    Filingnumber
    
    Exhibit description
    
    herewith
    
    Form
    
    ending
    
    Exhibit
    
    date3.1
    
    Navarre Corporation Amended and Restated
Articles of Incorporation
    
    
    
    S-1
    
    
    
    
    3.1
    
    
    04/13/063.2
    
    Navarre Corporation Amended and Restated
Bylaws
    
    
    
    8-K
    
    
    
    
    3.1
    
    
    01/25/074.1
    
    Form of Specimen Certificate for Common Stock
    
    
    
    S-1
    
    
    
    
    4.1
    
    
    04/13/064.2
    
    Form of Warrant dated March 21, 2006
    
    
    
    S-1
    
    
    
    
    4.4
    
    
    04/13/064.3
    
    Form of Agents Warrant
    
    
    
    S-1/A
    
    
    
    
    4.5
    
    
    06/26/0610.1*
    
    Navarre Corporation Amended and Restated
1992 Stock Option Plan
    
    
    
    10-K
    
    03/31/02
    
    
    10.3
    
    
    07/01/0210.2*
    
    2003 Amendment to 1992 Stock Option Plan
    
    
    
    S-8
    
    
    
    
    99.1
    
    
    09/23/0310.3*
    
    Navarre Corporation Amended and Restated
2004 Stock Plan
    
    
    
    S-8
    
    
    
    
    4
    
    
    02/22/06
 49




---



##### Table of Contents



Incorporated by referenceExhibit
    
    
    
    Filed
    
    
    
    Period
    
    
    
    
    
    Filingnumber
    
    Exhibit description
    
    herewith
    
    Form
    
    ending
    
    Exhibit
    
    date10.4*
    
    Form of Employee
Stock Option
Agreement under
2004 Stock Plan
    
    
    
    10-K
    
    03/31/05
    
    
    10.58
    
    
    06/14/0510.5*
    
    Form of
Non-Employee
Director Stock
Option Agreement
under 2004 Stock
Plan
    
    
    
    10-K
    
    03/31/05
    
    
    10.59
    
    
    06/14/0510.6*
    
    Form of Employee
Restricted Stock
Agreement under
2004 Stock Plan
    
    
    
    8-K
    
    
    
    
    10.2
    
    
    04/04/0610.7*
    
    Form of Director
Restricted Stock
Agreement under
2004 Stock Plan
    
    
    
    8-K
    
    
    
    
    10.3
    
    
    04/04/0610.8*
    
    Form of TSR Stock
Unit Agreement
under 2004 Stock
Plan
    
    
    
    8-K
    
    
    
    
    10.4
    
    
    04/04/0610.9*
    
    Form of Performance Stock Unit
Agreement under 2004 Stock Plan
    
    
    
    8-K
    
    
    
    
    10.5
    
    
    04/04/0610.10*
    
    Form of Restricted Stock Unit
Agreement under 2004 Stock Plan
    
    
    
    10-Q
    
    09/31/07
    
    
    10.1
    
    
    11/08/0710.11*
    
    Employment Agreement dated November
1, 2001 between the Company and
Eric H. Paulson
    
    
    
    10-Q
    
    12/31/01
    
    
    10.1
    
    
    02/13/0210.12*
    
    Amendment dated December 28, 2006
to Employment Agreement between the
Company and Eric H. Paulson
    
    
    
    8-K
    
    
    
    
    99.2
    
    
    12/29/0610.13*
    
    Amendment dated March 30, 2007 to
Employment Agreement between the
Company and Eric H. Paulson
    
    
    
    8-K
    
    
    
    
    99.1
    
    
    04/04/0710.14*
    
    Form of Separation Agreement
between the Company and Charles E.
Cheney
    
    
    
    10-K
    
    03/31/04
    
    
    10.41
    
    
    06/29/0410.15*
    
    Form of Post-Acquisition Employment
Agreement among the Company,
FUNimation Productions, Ltd. and
Gen Fukunaga
    
    
    
    8-K
    
    
    
    
    10.1
    (b)
    
    01/11/0510.16*
    
    Amended and Restated Employment
Agreement dated December 28, 2006
between the Company and Cary L.
Deacon
    
    
    
    8-K
    
    
    
    
    99.1
    
    
    12/29/0610.17*
    
    Amendment dated January 29, 2007 to
Amended and Restated Employment
Agreement between the Company and
Cary L. Deacon
    
    
    
    8-K
    
    
    
    
    10.1
    
    
    01/30/0710.18*
    
    Amendment dated March 20, 2008 to
Amended and Restated Employment
Agreement between the Company and
Cary L. Deacon
    
    
    
    8-K
    
    
    
    
    10.1
    
    
    03/21/0810.19*
    
    Amended and Restated Executive
Severance Agreement dated March 20,
2008 between the Company and J.
Reid Porter
    
    
    
    8-K
    
    
    
    
    10.2
    
    
    03/21/0810.20*
    
    Executive Severance Agreement dated
March 20, 2008 between the Company
and Brian Burke
    
    
    
    8-K
    
    
    
    
    10.3
    
    
    03/21/08
 50




---



##### Table of Contents



Incorporated by referenceExhibit
    
    
    
    Filed
    
    
    
    Period
    
    
    
    
    
    Filingnumber
    
    Exhibit description
    
    herewith
    
    Form
    
    ending
    
    Exhibit
    
    date10.21*
    
    Executive Severance Agreement dated
March 20, 2008 between the Company
and John Turner
    
    
    
    8-K
    
    
    
    
    10.4
    
    
    03/21/0810.22*
    
    Executive Severance Agreement dated
March 20, 2008 between the Company
and Joyce Fleck
    
    X10.23*
    
    Executive Severance Agreement dated
March 20, 2008 between the Company
and Calvin Morrell
    
    X10.24*
    
    Form of Lock-Up Agreement
    
    
    
    8-K
    
    
    
    
    10.1
    
    
    03/23/0610.25*
    
    Fiscal Year 2007 Annual Management Incentive Plan
    
    
    
    8-K
    
    
    
    
    10.1
    
    
    04/04/0610.26*
    
    Fiscal Year 2008 Annual Management Incentive Plan
    
    
    
    8-K
    
    
    
    
    10.1
    
    
    07/12/0710.27*
    
    Fiscal Year 2009 Annual Management Incentive Plan
    
    
    
    10-K
    
    03/31/08
    
    
    10.26
    
    
    06/16/0810.28*
    
    Fiscal Year 2010 Annual Management Incentive Plan
    
    
    
    8-K
    
    
    
    
    10.1
    
    
    04/21/0910.29
    
    Office/Warehouse Lease dated April 1,
1998 between the Company and
Cambridge Apartments, Inc.
    
    
    
    10-K
    
    03/31/99
    
    
    10.6
    
    
    06/29/9910.30
    
    Amendment dated September 27, 2001 to
Office/Warehouse Lease between the
Company and Cambridge Apartments,
Inc.
    
    
    
    10-Q
    
    06/30/03
    
    
    10.9.1
    
    
    08/14/0310.31
    
    Agreement of Reciprocal Easements,
Covenants, Conditions and
Restrictions dated June 16, 2003
    
    
    
    10-Q
    
    06/30/03
    
    
    10.9.3
    
    
    08/14/0310.32
    
    Amendment dated July 14, 2003 to
Office/Warehouse Lease between the
Company and Cambridge Apartments,
Inc.
    
    
    
    10-Q
    
    06/30/03
    
    
    10.9.2
    
    
    08/14/0310.33
    
    Form of Amendment dated February 23,
2004 to Office/Warehouse Lease
between the Company and Cambridge
Apartments, Inc.
    
    
    
    10-K
    
    03/31/04
    
    
    10.48
    
    
    06/29/0410.34
    
    Form of Amendment dated June 2004 to
Office/Warehouse Lease between the
Company and Cambridge Apartments,
Inc.
    
    
    
    10-K
    
    03/31/04
    
    
    10.49
    
    
    06/29/0410.35
    
    Addendum dated May 27, 2004 to
Office/Warehouse Lease between the
Company and Cambridge Apartments,
Inc.
    
    
    
    10-K
    
    03/31/04
    
    
    10.51
    
    
    06/29/0410.36
    
    Amendment dated March 21, 2004 to
Office/Warehouse Lease between the
Company and Airport One Limited
Partnership
    
    
    
    10-K
    
    03/31/04
    
    
    10.50
    
    
    06/29/04
 51




---



##### Table of Contents



Incorporated by referenceExhibit
    
    
    
    Filed
    
    
    
    Period
    
    
    
    
    
    Filingnumber
    
    Exhibit description
    
    herewith
    
    Form
    
    ending
    
    Exhibit
    
    date10.37
    
    Amendment dated
November 23, 2004
to Office/Warehouse
Lease between the
Company and Airport
One Limited
Partnership
    
    
    
    10-Q
    
    12/31/04
    
    
    10.1
    
    
    02/14/0510.38
    
    Amendment dated
February 2, 2006 to
Office/Warehouse
Lease between the
Company and Airport
One Limited
Partnership
    
    
    
    10-Q
    
    12/31/05
    
    
    10.1
    
    
    02/09/0610.39
    
    Form of
Office/Warehouse
Lease dated May 27,
2004 between the
Company and NL
Ventures IV New
Hope, L.P.
    
    
    
    10-K
    
    03/31/04
    
    
    10.47
    
    
    06/29/0410.40
    
    License and
Distribution
Agreement
(Manufacturing
Rights) (2004-2005)
between Encore
Software, Inc. and
Riverdeep Inc.
dated March 29,
2004
    
    
    
    10-Q/A
    
    09/30/04
    
    
    10.1
    
    
    11/19/0410.41
    
    License and
Distribution
Agreement
(Manufacturing
Rights) (2005-2007)
between Encore
Software, Inc. and
Riverdeep Inc.
dated March 29,
2004
    
    
    
    10-Q/A
    
    09/30/04
    
    
    10.2
    
    
    11/19/0410.42
    
    Addendum dated
April 13, 2004 to
License and
Distribution
Agreements
(Manufacturing
Rights) (2004-2005
and 2005-2007)
between Encore
Software, Inc. and
Riverdeep Inc.
    
    
    
    10-Q/A
    
    09/30/04
    
    
    10.3
    
    
    11/19/0410.43
    
    Form of Addendum
dated October 2004
to License and
Distribution
Agreements
(Manufacturing
Rights) (2004-2005
and 2005-2007)
between Encore
Software, Inc. and
Riverdeep Inc.
    
    
    
    10-Q/A
    
    09/30/04
    
    
    10.4
    
    
    11/19/0410.44
    
    Form of Addendum
dated November 2004
to License and
Distribution
Agreements
(Manufacturing
Rights) (2004-2005
and 2005-2007)
between Encore
Software, Inc. and
Riverdeep Inc
    
    
    
    10-Q
    
    12/31/04
    
    
    10.2
    
    
    02/14/0510.45
    
    Addendum dated
October 6, 2005 to
License and
Distribution
Agreements
(Manufacturing
Rights) (2004-2005
and 2005-2007)
between Encore
Software, Inc. and
Riverdeep Inc.
    
    
    
    10-Q
    
    09/30/05
    
    
    10.1
    
    
    11/14/0510.46
    
    Addendum dated
April 1, 2006 to
License and
Distribution
Agreements
(Manufacturing
Rights) (2004-2005
and 2005-2007)
between Encore
Software, Inc. and
Riverdeep Inc.
    
    
    
    10-K
    
    03/31/06
    
    
    10.98
    
    
    06/14/0610.47
    
    Office Lease dated
October 8, 2004
between Encore
Software, Inc. and
Kilroy Realty, L.P.
    
    
    
    10-Q
    
    09/30/04
    
    
    10.57
    
    
    11/15/0410.48
    
    Amendment dated
December 29, 2004
to Office Lease
between Encore
Software, Inc. and
Kilroy Realty, L.P.
    
    
    
    10-Q
    
    12/31/04
    
    
    10.3
    
    
    02/14/05
 52




---



##### Table of Contents



Incorporated by referenceExhibit
    
    
    
    Filed
    
    
    
    Period
    
    
    
    
    
    Filingnumber
    
    Exhibit description
    
    herewith
    
    Form
    
    ending
    
    Exhibit
    
    date10.49
    
    Partnership
Interest Purchase
Agreement dated
January 10, 2005
among FUNimation
Sellers and the
Company
    
    
    
    8-K
    
    
    
    
    10.1
    
    
    01/11/0510.50
    
    Form of Assignment
and Assumption of
FUNimation Limited
Partnership
Interests
    
    
    
    8-K
    
    
    
    
    10.1
    (a)
    
    02/14/0510.51
    
    Form of FUNimation
Sellers
Non-Competition
Agreement
    
    
    
    8-K
    
    
    
    
    10.1
    (d)
    
    02/14/0510.52
    
    Amendment dated May
11, 2005 to
Partnership
Interest Purchase
Agreement among
FUNimation Sellers
and the Company
    
    
    
    8-K
    
    
    
    
    10.47
    
    
    06/29/0410.53
    
    Memorandum of
Understanding dated
February 7, 2006
among FUNimation
Sellers and the
Company
    
    
    
    8-K
    
    
    
    
    99.1
    
    
    02/08/0610.54
    
    Office Lease dated
May 29, 2007
between FUNimation
Productions, Ltd.
and FMBP Industrial
I LP
    
    
    
    10-K
    
    03/31/07
    
    
    10.117
    
    
    06/14/0710.55
    
    Form of Securities
Purchase Agreement
dated March 2006
between the Company
and various
purchasers
    
    
    
    S-1
    
    
    
    
    4.2
    
    
    04/13/0610.56
    
    Form of
Registration Rights
Agreement dated
March 2006 between
the Company and
various purchasers
    
    
    
    S-1
    
    
    
    
    4.3
    
    
    04/13/0610.57
    
    Purchase and Sale
Agreement dated May
11, 2007 by and
among the Company,
Navarre
Entertainment
Media, Inc. and
Koch Entertainment
LP
    
    
    
    8-K
    
    
    
    
    10.1
    
    
    05/14/0710.58
    
    Form of Fourth
Amended and
Restated Credit
Agreement dated
March 22, 2007
among the Company,
General Electric
Capital
Corporation, as
Agent, and Lenders
    
    
    
    8-K
    
    
    
    
    10.1
    
    
    03/23/0710.59
    
    Form of Amendment
and Limited Waiver
dated May 30, 2007
to Fourth Amended
and Restated Credit
Agreement among the
Company, General
Electric Capital
Corporation, as
Agent, and Lenders
    
    
    
    8-K
    
    
    
    
    10.1
    
    
    05/31/0710.60
    
    Form of Amendment
and Limited Waiver
dated June 30, 2007
to Fourth Amended
and Restated Credit
Agreement among the
Company, General
Electric Capital
Corporation, as
Agent, and Lenders
    
    
    
    8-K
    
    
    
    
    10.1
    
    
    08/13/0710.61
    
    Form of Amendment
and Limited Waiver
dated June 12, 2008
to Fourth Amended
and Restated Credit
Agreement among the
Company, General
Electric Capital
Corporation, as
Agent, and Lenders
    
    
    
    10-K
    
    03/31/08
    
    
    10.59
    
    
    06/16/08
 53




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##### Table of Contents



Incorporated by referenceExhibit
    
    
    
    Filed
    
    
    
    Period
    
    
    
    
    
    Filingnumber
    
    Exhibit description
    
    herewith
    
    Form
    
    ending
    
    Exhibit
    
    date10.62
    
    Form of Amendment dated October 30, 2008 to Fourth
Amended and Restated Credit Agreement among the
Company, General Electric Capital Corporation, as
Agent, and Lenders
    
    
    
    8-K
    
    
    
    
    10.1
    
    
    10/31/0810.63
    
    Form of Amendment and Limited Waiver dated February
5, 2009 to Fourth Amended and Restated Credit
Agreement among the Company, General Electric
Capital Corporation, as Agent, and Lenders
    
    
    
    10-Q
    
    12/31/08
    
    
    10.1
    
    
    02/09/0910.64
    
    Form of Amendment dated February 17, 2009 to Fourth
Amended and Restated Credit Agreement among the
Company, General Electric Capital Corporation, as
Agent, and Lenders
    
    
    
    8-K
    
    
    
    
    10.1
    
    
    02/19/0910.65
    
    Form of Credit Agreement dated March 22, 2007 among
the Company, Monroe Capital Advisors, LLC, as
Agent, and Lenders
    
    
    
    8-K
    
    
    
    
    10.2
    
    
    03/23/0710.66
    
    Limited Waiver dated May 30, 2007 to Credit
Agreement among the Company, Monroe Capital
Advisors, LLC, as Agent, and Lenders
    
    
    
    8-K
    
    
    
    
    10.2
    
    
    05/31/0710.67
    
    Form of Amendment dated June 30, 2007 to Credit
Agreement among the Company, Monroe Capital
Advisors, LLC, as Agent, and Lenders
    
    
    
    8-K
    
    
    
    
    10.2
    
    
    08/13/0714.1
    
    Navarre Corporation Code of Business Conduct and
Ethics
    
    
    
    10-K
    
    03/31/04
    
    
    14.1
    
    
    06/29/0421.1
    
    Subsidiaries of the Registrant
    
    
    
    10-K
    
    03/31/08
    
    
    21.1
    
    
    06/16/0823.1
    
    Consent of Independent Registered Public Accounting
Firm  Grant Thornton LLP
    
    X24.1
    
    Power of Attorney, contained on signature page
    
    X31.1
    
    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)
    
    X31.2
    
    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)
    
    X32.1
    
    Certification of the Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (18 U.S.C. Section 1350)
    
    X32.2
    
    Certification of the Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (18 U.S.C. Section 1350)
    
    X
 
 *
    
    Indicates a management contract or compensatory plan or arrangement 54




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##### Table of Contents



SIGNATURES
  Navarre Corporation
(Registrant)June 9, 2009
    By
    /s/ Cary L. DeaconCary L. DeaconPresident and Chief Executive Officer  55




---



##### Table of Contents



POWER OF ATTORNEY
  Signature
    
    Title
    
    Date/s/ Cary L. Deacon

Cary L. Deacon
    
    President and Chief Executive Officer and
Director (principal
executive officer)
    
    June 9, 2009/s/ J. Reid Porter

J. Reid Porter
    
    Chief Financial Officer (principal financial and accounting
officer)
    
    June 9, 2009/s/ Eric H. Paulson

Eric H. Paulson
    
    Chairman of the Board
    
    June 9, 2009/s/ Keith A. Benson

Keith A. Benson
    
    Director
    
    June 9, 2009/s/ Timothy R. Gentz

Timothy R. Gentz
    
    Director
    
    June 9, 2009/s/ Kathleen P. Iverson

Kathleen P. Iverson
    
    Director
    
    June 9, 2009/s/ Michael L. Snow

Michael L. Snow
    
    Director
    
    June 9, 2009/s/ Tom F. Weyl

Tom F. Weyl
    
    Director
    
    June 9, 2009/s/ Deborah L. Hopp

Deborah L. Hopp
    
    Director
    
    June 9, 2009/s/ Richard Gary St. Marie

Richard Gary St. Marie
    
    Director
    
    June 9, 2009
 56




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal
Control-Integrated Framework
  
 57




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal
Control-Integrated Framework
    Internal Control-Integrated Framework
   
 58




---



##### Table of Contents



NAVARRE CORPORATION
CONSOLIDATED BALANCE SHEETS
 March 31,2009
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    4,445Marketable securities
    
    
    1,024
    
    
    
    1,506Accounts receivable, less allowances of $19,010 and $15,417, respectively
    
    
    72,817
    
    
    
    76,806Inventories
    
    
    26,732
    
    
    
    32,654Prepaid expenses and other current assets
    
    
    11,090
    
    
    
    12,118Income taxes receivable
    
    
    4,866
    
    
    
    937Deferred tax assets  current, net
    
    
    6,219
    
    
    
    9,100Total current assets
    
    
    122,748
    
    
    
    137,566Property and equipment, net of accumulated depreciation of $16,704 and
$14,484, respectively
    
    
    15,957
    
    
    
    17,181Assets held for sale, net of accumulated depreciation of $194 at March 31, 2008
    
    
    
    
    
    
    1,428Software development costs, net
    
    
    677
    
    
    
    Other assets:Marketable securities
    
    
    
    
    
    
    2,667Goodwill
    
    
    
    
    
    
    81,697Intangible assets, net of amortization of $25,364 and $21,180, respectively
    
    
    3,406
    
    
    
    9,984License fees, net of amortization of $21,570 and $19,595, respectively
    
    
    17,728
    
    
    
    20,515Production costs, net of amortization of $12,223 and $7,439, respectively
    
    
    8,408
    
    
    
    7,316Deferred tax assets  non-current, net
    
    
    10,299
    
    
    
    Other assets
    
    
    3,946
    
    
    
    5,108Total assets
    
    $
    183,169
    
    
    $
    283,462Liabilities and shareholders equityCurrent liabilities:Note payable  line of credit
    
    $
    24,133
    
    
    $
    31,314Note payable  short-term
    
    
    
    
    
    
    150Capital lease obligation  short-term
    
    
    90
    
    
    
    59Accounts payable
    
    
    106,708
    
    
    
    92,199Checks written in excess of cash balance
    
    
    297
    
    
    
    Deferred compensation
    
    
    2,149
    
    
    
    2,080Accrued expenses
    
    
    11,504
    
    
    
    16,118Total current liabilities
    
    
    144,881
    
    
    
    141,920Long-term liabilitiesNote payable  long-term
    
    
    
    
    
    
    9,594Capital lease obligation  long-term
    
    
    115
    
    
    
    60Deferred compensation
    
    
    
    
    
    
    3,491Deferred tax liabilities  non-current
    
    
    
    
    
    
    3,106Income taxes payable
    
    
    1,166
    
    
    
    880Total liabilities
    
    
    146,162
    
    
    
    159,051Commitments and contingencies (Note 24)Shareholders equity:Common stock, no par value:Authorized shares  100,000,000; issued and outstanding shares 
36,260,116 and 36,227,886, respectively
    
    
    161,134
    
    
    
    160,103Accumulated deficit
    
    
    (124,126
    )
    
    
    (35,692
    )Accumulated other comprehensive loss
    
    
    (1
    )
    
    
    Total shareholders equity
    
    
    37,007
    
    
    
    124,411Total liabilities and shareholders equity
    
    $
    183,169
    
    
    $
    283,462
 See accompanying notes to consolidated financial statements.
 59




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##### Table of Contents



NAVARRE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
 Fiscal Years ended March 31,2009
    
    
    2008
    
    
    2007Net sales
    
    $
    630,991
    
    
    $
    658,472
    
    
    $
    644,790Cost of sales (exclusive of depreciation and amortization)
    
    
    563,944
    
    
    
    556,913
    
    
    
    537,433Gross profit
    
    
    67,047
    
    
    
    101,559
    
    
    
    107,357Operating expenses:Selling and marketing
    
    
    25,334
    
    
    
    27,371
    
    
    
    28,299Distribution and warehousing
    
    
    12,166
    
    
    
    12,689
    
    
    
    12,330General and administrative
    
    
    32,664
    
    
    
    34,096
    
    
    
    35,754Bad debt expense (recovery)
    
    
    300
    
    
    
    (15
    )
    
    
    3,654Depreciation and amortization
    
    
    10,972
    
    
    
    9,587
    
    
    
    10,958Goodwill and intangible impairment
    
    
    82,729
    
    
    
    
    
    
    
    Total operating expenses
    
    
    164,165
    
    
    
    83,728
    
    
    
    90,995Income (loss) from operations
    
    
    (97,118
    )
    
    
    17,831
    
    
    
    16,362Other income (expense):Interest expense
    
    
    (4,630
    )
    
    
    (6,127
    )
    
    
    (10,220
    )Interest income
    
    
    86
    
    
    
    259
    
    
    
    357Warrant expense
    
    
    
    
    
    
    
    
    
    
    (251
    )Other income (expense), net
    
    
    (1,255
    )
    
    
    366
    
    
    
    (50
    )Income (loss) from continuing operations before income tax
    
    
    (102,917
    )
    
    
    12,329
    
    
    
    6,198Income tax benefit (expense)
    
    
    14,483
    
    
    
    (5,273
    )
    
    
    (2,594
    )Net income (loss) from continuing operations
    
    
    (88,434
    )
    
    
    7,056
    
    
    
    3,604Discontinued operations, net of taxGain on sale of discontinued operations
    
    
    
    
    
    
    4,892
    
    
    
    Income (loss) from discontinued operations
    
    
    
    
    
    
    (2,290
    )
    
    
    455Net income (loss)
    
    $
    (88,434
    )
    
    $
    9,658
    
    
    $
    4,059Basic earnings (loss) per common share:Continuing operations
    
    $
    (2.44
    )
    
    $
    .20
    
    
    $
    .10Discontinued operations
    
    
    
    
    
    
    .07
    
    
    
    .01Net income (loss)
    
    $
    (2.44
    )
    
    $
    .27
    
    
    $
    .11Diluted earnings (loss) per common share:Continuing operations
    
    $
    (2.44
    )
    
    $
    .20
    
    
    $
    .10Discontinued operations
    
    
    
    
    
    
    .07
    
    
    
    .01Net income (loss)
    
    $
    (2.44
    )
    
    $
    .27
    
    
    $
    .11Weighted average shares outstanding:Basic
    
    
    36,207
    
    
    
    36,105
    
    
    
    35,786Diluted
    
    
    36,207
    
    
    
    36,269
    
    
    
    36,228
 See accompanying notes to consolidated financial statements.
 60




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##### Table of Contents



NAVARRE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
 AccumulatedOther
    
    
    Total
    
    
    Temporary Equity  UnregisteredCommon Stock
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Shareholders
    
    
    Common StockShares
    
    
    Amount
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Equity
    
    
    Shares
    
    
    AmountBalance at March 31, 2006
    
    
    29,911,097
    
    
    $
    138,292
    
    
    $
    (49,409
    )
    
    $
    23
    
    
    $
    88,906
    
    
    
    5,699,998
    
    
    $
    16,634Shares issued upon
exercise of stock
options and for
restricted stock
    
    
    427,200
    
    
    
    466
    
    
    
    
    
    
    
    
    
    
    
    466
    
    
    
    
    
    
    
    Reclassification of
warrant accrual
    
    
    
    
    
    
    2,487
    
    
    
    
    
    
    
    
    
    
    
    2,487
    
    
    
    
    
    
    
    Reclassification of
temporary equity
    
    
    5,699,998
    
    
    
    16,634
    
    
    
    
    
    
    
    
    
    
    
    16,634
    
    
    
    (5,699,998
    )
    
    
    (16,634
    )Share based compensation
    
    
    
    
    
    
    910
    
    
    
    
    
    
    
    
    
    
    
    910
    
    
    
    
    
    
    
    Tax benefit from
employee stock option
plans
    
    
    
    
    
    
    143
    
    
    
    
    
    
    
    
    
    
    
    143
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    (131
    )
    
    
    
    
    
    
    
    
    
    
    (131
    )
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    4,059
    
    
    
    
    
    
    
    4,059
    
    
    
    
    
    
    
    Unrealized gain on
derivative instrument,
net of tax of $14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23
    )
    
    
    (23
    )
    
    
    
    
    
    
    Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,036
    
    
    
    
    
    
    
    Balance at March 31, 2007
    
    
    36,038,295
    
    
    
    158,801
    
    
    
    (45,350
    )
    
    
    
    
    
    
    113,451
    
    
    
    
    
    
    
    Shares issued upon
exercise of stock
options and for
restricted stock
    
    
    197,209
    
    
    
    190
    
    
    
    
    
    
    
    
    
    
    
    190
    
    
    
    
    
    
    
    Share based compensation
    
    
    
    
    
    
    1,072
    
    
    
    
    
    
    
    
    
    
    
    1,072
    
    
    
    
    
    
    
    Tax benefit from
employee stock option
plans
    
    
    
    
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    67
    
    
    
    
    
    
    
    Redemptions of common
stock to cover tax
withholdings
    
    
    (7,618
    )
    
    
    (27
    )
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    9,658
    
    
    
    
    
    
    
    9,658
    
    
    
    
    
    
    
    Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,658
    
    
    
    
    
    
    
    Balance at March 31, 2008
    
    
    36,227,886
    
    
    
    160,103
    
    
    
    (35,692
    )
    
    
    
    
    
    
    124,411
    
    
    
    
    
    
    
    Shares issued upon
exercise of stock
options and for
restricted stock
    
    
    50,199
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    Share based compensation
    
    
    
    
    
    
    1,033
    
    
    
    
    
    
    
    
    
    
    
    1,033
    
    
    
    
    
    
    
    Tax benefit from
employee stock option
plans
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Redemptions of common
stock to cover tax
withholdings
    
    
    (17,969
    )
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    (88,434
    )
    
    
    
    
    
    
    (88,434
    )
    
    
    
    
    
    
    Unrealized loss on
marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (88,435
    )
    
    
    
    
    
    
    Balance at March 31, 2009
    
    
    36,260,116
    
    
    $
    161,134
    
    
    $
    (124,126
    )
    
    $
    (1
    )
    
    $
    37,007
    
    
    
    
    
    
    $
    
 See accompanying notes to consolidated financial statements.
 61




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##### Table of Contents



NAVARRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Fiscal Years ended March 31,2009
    
    
    2008
    
    
    2007Operating activities:Net income (loss)
    
    $
    (88,434
    )
    
    $
    9,658
    
    
    $
    4,059Adjustments to reconcile net income (loss) to net cash (used in) provided by operating
activities:(Income) loss from discontinued operations
    
    
    
    
    
    
    2,290
    
    
    
    (455
    )Gain on sale of discontinued operations
    
    
    
    
    
    
    (4,892
    )
    
    
    Depreciation and amortization
    
    
    10,961
    
    
    
    9,672
    
    
    
    10,954Amortization of debt acquisition costs
    
    
    250
    
    
    
    333
    
    
    
    551Write-off of debt acquisition costs
    
    
    950
    
    
    
    
    
    
    
    2,426Amortization of license fees
    
    
    13,372
    
    
    
    6,907
    
    
    
    7,353Amortization of production costs
    
    
    6,230
    
    
    
    3,284
    
    
    
    2,278Goodwill and intangible impairment
    
    
    82,729
    
    
    
    
    
    
    
    Change in deferred revenue
    
    
    182
    
    
    
    (311
    )
    
    
    (80
    )Share-based compensation expense
    
    
    1,033
    
    
    
    1,072
    
    
    
    910Deferred compensation expense
    
    
    (222
    )
    
    
    (787
    )
    
    
    1,086Write-off of notes receivable, related party
    
    
    
    
    
    
    
    
    
    
    200Tax benefit from employee stock options
    
    
    1
    
    
    
    67
    
    
    
    143Deferred income taxes
    
    
    (10,524
    )
    
    
    2,788
    
    
    
    (1,246
    )Other
    
    
    88
    
    
    
    (171
    )
    
    
    238Changes in operating assets and liabilities, net of effects of acquisitions:Accounts receivable
    
    
    3,989
    
    
    
    (6,197
    )
    
    
    (997
    )Inventories
    
    
    5,922
    
    
    
    4,137
    
    
    
    3,900Prepaid expenses
    
    
    1,028
    
    
    
    (992
    )
    
    
    (1,960
    )Contingent liabilities
    
    
    
    
    
    
    (760
    )
    
    
    Income taxes receivable
    
    
    (3,929
    )
    
    
    (109
    )
    
    
    3,580Other assets
    
    
    739
    
    
    
    634
    
    
    
    1,855Production costs
    
    
    (7,322
    )
    
    
    (5,183
    )
    
    
    (3,918
    )License fees
    
    
    (10,585
    )
    
    
    (11,813
    )
    
    
    (9,615
    )Accounts payable
    
    
    14,536
    
    
    
    5,054
    
    
    
    2,302Income taxes payable
    
    
    286
    
    
    
    880
    
    
    
    Accrued expenses
    
    
    (4,811
    )
    
    
    2,824
    
    
    
    (2,211
    )Net cash provided by operating activities
    
    
    16,469
    
    
    
    18,385
    
    
    
    21,353Investing activities:Purchases of property and equipment
    
    
    (3,544
    )
    
    
    (8,562
    )
    
    
    (7,053
    )Purchases of intangible assets
    
    
    (666
    )
    
    
    (1,379
    )
    
    
    (1,534
    )Purchases of software development
    
    
    (677
    )
    
    
    
    
    
    
    Purchases of marketable equity securities
    
    
    
    
    
    
    (4,000
    )
    
    
    Sale of marketable equity securities
    
    
    3,200
    
    
    
    
    
    
    
    Proceeds from sale of assets held for sale
    
    
    1,353
    
    
    
    
    
    
    
    Payment of earn-out related to an acquisition
    
    
    
    
    
    
    
    
    
    
    (350
    )Other
    
    
    
    
    
    
    
    
    
    
    57Net cash used in investing activities
    
    
    (334
    )
    
    
    (13,941
    )
    
    
    (8,880
    )Financing activities:Proceeds from note payable, line of credit
    
    
    208,758
    
    
    
    198,379
    
    
    
    97,240Payments on note payable, line of credit
    
    
    (215,939
    )
    
    
    (206,021
    )
    
    
    (58,284
    )Repayment of note payable
    
    
    (9,744
    )
    
    
    (5,256
    )
    
    
    (80,130
    )Proceeds of note payable
    
    
    
    
    
    
    
    
    
    
    15,000Payment of deferred compensation
    
    
    (3,200
    )
    
    
    
    
    
    
    Checks written in excess of cash
    
    
    297
    
    
    
    
    
    
    
    Debt acquisition costs
    
    
    (850
    )
    
    
    (240
    )
    
    
    (990
    )Proceeds (repayments) of capital lease obligations
    
    
    86
    
    
    
    (103
    )
    
    
    (115
    )Other
    
    
    
    
    
    
    
    
    
    
    (131
    )Proceeds from exercise of common stock options and warrants
    
    
    12
    
    
    
    190
    
    
    
    466Net cash used in financing activities
    
    
    (20,580
    )
    
    
    (13,051
    )
    
    
    (26,944
    )Net decrease in cash from continuing operations
    
    
    (4,445
    )
    
    
    (8,607
    )
    
    
    (14,471
    )
 62




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Fiscal Years ended March 31,2009
    
    
    2008
    
    
    2007Discontinued operations:Net cash provided by (used in) operating activities
    
    
    
    
    
    
    5,586
    
    
    
    1,141Net cash provided by investing activities, proceeds from sale of discontinued operations
    
    
    
    
    
    
    6,500
    
    
    
    Net increase (decrease) in cash
    
    
    (4,445
    )
    
    
    3,479
    
    
    
    (13,330
    )Cash at beginning of year
    
    
    4,445
    
    
    
    966
    
    
    
    14,296Cash at end of year
    
    $
    
    
    
    $
    4,445
    
    
    $
    966Supplemental cash flow information:Cash paid (received) for:Interest
    
    $
    3,885
    
    
    $
    5,460
    
    
    $
    8,834Income taxes, net of refunds
    
    
    (262
    )
    
    
    1,086
    
    
    
    601Supplemental schedule of non-cash investing and financing activities:Purchase price adjustments affecting accounts receivable and goodwill
    
    
    
    
    
    
    
    
    
    
    145Purchase price adjustments affecting accounts receivable and gain on sale, net
    
    
    
    
    
    
    245
    
    
    
    Shares received for payment of tax withholding obligations
    
    
    15
    
    
    
    27
    
    
    
    Reclassification of deposits from property and equipment to prepaid expenses
    
    
    
    
    
    
    
    
    
    
    164Expiration of fully amortized license fees
    
    
    11,397
    
    
    
    
    
    
    
    Expiration of fully amortized production costs
    
    
    1,446
    
    
    
    
    
    
    
    Reclassification of warrant accrual and temporary equity to common stock
    
    
    
    
    
    
    
    
    
    
    19,121
 See accompanying notes to consolidated financial statements.
 63




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##### Table of Contents



NAVARRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009
 Note 1 Business Description
  anime
  Note 2 Summary of Significant Accounting Policies
 Basis of Consolidation
  Segment Reporting
  Fiscal Year
  Use of Estimates
  64




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##### Table of Contents



Reclassifications
  Fair Value of Financial Instruments
  Cash and Cash Equivalents
  Marketable Securities
   Derivatives and Hedging
 Accounting for Derivative
Instruments and Hedging Activities
 Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock,
 65




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##### Table of Contents



Inventories
  Prepaid Royalties
 Financial Reporting in the Record and Music Industry
 Royalties Payable  FUNimation
 Accounting by Producers or Distributors of Films
 Advertising
  66




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##### Table of Contents



Property and Equipment
  Asset
    
    Life in YearsBuildings
    
    
    25Furniture and fixtures
    
    
    7Office equipment
    
    
    5Computer equipment
    
    
    3Warehouse equipment
    
    
    5Leasehold improvements
    
    
    1-10Enterprise resource planning (ERP) system
    
    
    7
   Production Costs  FUNimation
 Accounting by Producers or Distributors of Films
  License Fees  FUNimation
 SOP 00-2
 67




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##### Table of Contents



Impairment of Long-Lived Assets
  Goodwill
  Intangible Assets
  Debt Issuance Costs
  Operating Leases
  Revenue Recognition
  68




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##### Table of Contents



Accounting by
Producers or Distributors of Films
 Vendor Allowances
 Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor
 Marketing Development Funds
 Accounting for Consideration Given
by a Vendor to a Customer or a Reseller of the Vendors Products,
 Accounts Receivable and Allowance for Doubtful Accounts
  Classification of Shipping Costs
  69




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##### Table of Contents



Foreign Currency Transactions
  Income Taxes
  Stock-Based Compensation
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees Statement of Cash
Flows
   Earnings (Loss) Per Share
  70




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##### Table of Contents



Fiscal Years ended March 31,2009
    
    
    2008
    
    
    2007Numerator:Net income (loss) from continuing operations
    
    $
    (88,434
    )
    
    $
    7,056
    
    
    $
    3,604Denominator:Denominator for basic earnings per share  weighted average shares
    
    
    36,207
    
    
    
    36,105
    
    
    
    35,786Dilutive securities: Employee stock options and warrants
    
    
    
    
    
    
    164
    
    
    
    442Denominator for diluted earnings per share  adjusted weighted
average shares
    
    
    36,207
    
    
    
    36,269
    
    
    
    36,228Net earnings (loss) per share from continuing operations:Basic earnings (loss) per share
    
    $
    (2.44
    )
    
    $
    .20
    
    
    $
    .10Diluted earnings (loss) per share
    
    $
    (2.44
    )
    
    $
    .20
    
    
    $
    .10
    Recently Issued Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for
Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115
 71




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##### Table of Contents



Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51
 Business
Combinations
 
    
    Acquisition costs will generally be expensed as incurred;
    
    Noncontrolling interests (formerly known as minority interests) will be valued at
fair value at the acquisition date;
    
    Acquired contingent liabilities will be recorded at fair value at the acquisition date
and subsequently measured at either the higher of such amount or the amount determined
under existing guidance for non-acquired contingencies;
    
    In-process research and development will be recorded at fair value as an
indefinite-lived intangible asset at the acquisition date;
    
    Restructuring costs associated with a business combination will be generally expensed
subsequent to the acquisition date; and
    
    Changes in deferred tax asset valuation allowances and income tax uncertainties after
the acquisition date generally will affect income tax expense.
  Disclosures about Derivative Instruments and
Hedging Activities, an amendment of SFAS No. 133
 The Hierarchy of Generally Accepted Accounting Principles
 72




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Subsequent Events
 Note 3 Goodwill and Intangible Assets
 Goodwill
     73




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##### Table of Contents



Intangible assets
  As of March 31, 2009Gross carrying
    
    
    Accumulatedamount
    
    
    amortization
    
    
    NetMasters (1)
    
    $
    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
 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
    
    
    
    52Trademarks (not amortized)
    
    
    1,568
    
    
    
    
    
    
    
    1,568$
    31,164
    
    
    $
    21,180
    
    
    $
    9,984
 
 (1)
    
    Reflects a $2.0 million impairment charge related to masters which reduced both the gross
carrying amount and accumulated amortization. The $2.0 million impairment charge was included in
amortization expense for the period ended March 31, 2009 (see further disclosure in Note 4). Goodwill and Other Intangible Assets.
 Goodwill and Other Intangible Assets.
  2010
    
    $
    1,8062011
    
    
    4252012
    
    
    2372013
    
    
    302Thereafter
    
    
 Debt issuance costs
  74




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##### Table of Contents



Note 4 Impairments and Other Charges
  
    
    BCI began winding down its licensing operations related to budget DVD video. For the
year ended March 31, 2009, the Company recorded $25.9 million in impairment and other
charges, which included $7.3 million for inventory, $7.1 million for prepaid royalties,
$2.0 million for masters, $2.0 million for accounts receivable reserves and $7.4 million
for goodwill (see further disclosure in Note 3).
    
    FUNimation is no longer involved in licensing operations related to DVD video of
childrens properties. For the year ended March 31, 2009, the Company recorded $81.0
million in impairment and other charges, which included $8.2 million for license fees and
production costs, $71.2 million for goodwill (see further disclosure in Note 3), $1.0
million for trademarks and $555,000 for inventory.
 License Fees and Production Costs Accounting by Producers or Distributors of
Films,
 Prepaid Royalties.
 Masters, Trademarks and Goodwill.
 
    
    MastersThe Company evaluates its definite lived intangible amortizing assets in
accordance with SFAS No. 142, Goodwill and Other Intangible Assets.SFAS No. 142 requires
the Company to record impairment losses on amortizing intangible assets when changes in
events and circumstances indicate the asset might be impaired and the undiscounted cash
flows estimated to be generated by those assets are less than their carrying amounts.
Impairment losses are measured by comparing the fair value of the assets to their carrying
amounts. The Company determines fair value utilizing current market values and future
market trends. The impairment related to BCI masters was $2.0 million during fiscal 2009.
    
    TrademarksThe Company evaluates its indefinite lived intangible assets in
accordance with SFAS No. 142, Goodwill and Other Intangible Assets.The Company reviews
intangible assets for impairment annually or when events or change in circumstances
indicate that the carrying value might exceed the current fair value. In determining the
implied fair value of each reporting units goodwill as compared to carrying value, a
hypothetical valuation of all tangible and intangibles assets of the reporting unit as if
the reporting unit had been acquired in a business combination is completed. As part of
this analysis, the trademarks associated
 75




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##### Table of Contents



with FUNimation were determined to have an estimated fair value less than the carrying value.
The Company determined fair value using the relief from royalty valuation technique. The
impairment for FUNimation trademarks was $1.0 million during fiscal 2009.
    
    GoodwillThe Company recognizes the excess cost of an acquired entity over the net
amount assigned to the fair value of the assets acquired and liabilities assumed as
goodwill. The Company reviews goodwill for potential impairment annually for each reporting
unit, or when events or changes in circumstances indicate that the carrying value of the
goodwill might exceed its current fair value. Factors which may cause impairment include
negative industry or economic trends, a sustained decline in the Companys share price, and
significant underperformance relative to historical or projected future operating results.
The Company determines fair value using widely accepted valuation techniques, including
discounted cash flow and market multiple analysis. The amount of impairment loss would be
recognized as the excess of the assets carrying value over its fair value. The goodwill
impairment charge for the publishing segment was $81.7 million during fiscal 2009.
 Inventory
 Accounts Receivable Reserves
 Severance Accounting for Costs Associated with Disposal or Exit Activities Employers Accounting for Postemployment
Benefits,
 76




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License Fees
    
    
    
    
    
    
    Masters,
    
    
    
    
    
    
    Accountsand Production
    
    
    Prepaid
    
    
    Goodwill and
    
    
    
    
    
    
    ReceivableCosts -
    
    
    Royalties -
    
    
    Trademarks-
    
    
    Inventory-
    
    
    Reserves-
    
    
    Severance-
    
    
    Severance-Publishing
    
    
    Publishing
    
    
    Publishing
    
    
    Publishing
    
    
    Publishing
    
    
    Publishing
    
    
    Distribution
    
    
    TotalSales
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,057
    
    
    $
    
    
    
    $
    
    
    
    $
    1,057Cost of sales
    
    
    8,239
    
    
    
    7,076
    
    
    
    
    
    
    
    7,855
    
    
    
    985
    
    
    
    52
    
    
    
    
    
    
    
    24,207Selling and marketing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159
    
    
    
    13
    
    
    
    172Distribution and
warehousing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74
    
    
    
    74General and
administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    330
    
    
    
    504
    
    
    
    834Depreciation and
amortization
    
    
    
    
    
    
    
    
    
    
    2,029
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,029Goodwill and
intangible
impairment
    
    
    
    
    
    
    
    
    
    
    82,729
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,729Total
    
    $
    8,239
    
    
    $
    7,076
    
    
    $
    84,758
    
    
    $
    7,855
    
    
    $
    2,042
    
    
    $
    541
    
    
    $
    591
    
    
    $
    111,102
  AccountsReceivableSeverance-
    
    
    Severance-
    
    
    Reserves-Distribution
    
    
    Publishing
    
    
    Publishing
    
    
    TotalReserve balance at March 31, 2008
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Provision for restructuring
    
    
    591
    
    
    
    541
    
    
    
    2,042
    
    
    
    3,174Cash payments
    
    
    546
    
    
    
    204
    
    
    
    1,016
    
    
    
    1,766Reserve balance at March 31, 2009
    
    $
    45
    
    
    $
    337
    
    
    $
    1,026
    
    
    $
    1,408
 Note 5 Discontinued Operations
   77




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Fiscal Years ended March 31,2009
    
    
    2008
    
    
    2007Net sales
    
    $
    
    
    
    $
    5,197
    
    
    $
    53,581Income (loss) from discontinued operations, before income tax
    
    
    
    
    
    
    (3,947
    )
    
    
    746Income tax benefit (expense)
    
    
    
    
    
    
    1,657
    
    
    
    (291
    )Income (loss) from discontinued operations, net of tax
    
    $
    
    
    
    $
    (2,290
    )
    
    $
    455
   Note 6 Marketable Securities
     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
 As of March 31, 2008Gross
    
    
    GrossEstimated fair
    
    
    unrealized
    
    
    unrealizedvalue
    
    
    holding gains
    
    
    holding lossesAvailable-for-sale:Government agency and corporate bonds
    
    $
    410
    
    
    $
    
    
    
    $
    Money market fund
    
    
    3,763
    
    
    
    
    
    
    
    $
    4,173
    
    
    $
    
    
    
    $
    
  Fair Value Measurements
 78




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##### Table of Contents




    
    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.
  Note 7 Comprehensive Income (Loss)
   Years Ended March 31,2009
    
    
    2008
    
    
    2007Net income (loss) from continuing operations
    
    $
    (88,434
    )
    
    $
    9,658
    
    
    $
    4,059Change in net unrealized (loss) on hedge derivatives, net of tax
    
    
    
    
    
    
    
    
    
    
    (27
    )Less realized net gain on hedge derivatives, net of tax
    
    
    
    
    
    
    
    
    
    
    4Net unrealized loss on marketable securities, net of tax
    
    
    (1
    )
    
    
    
    
    
    
    Comprehensive income (loss)
    
    $
    (88,435
    )
    
    $
    9,658
    
    
    $
    4,036
   Note 8 Accounts Receivable
  March 31, 2009
    
    
    March 31, 2008Trade receivables
    
    $
    86,345
    
    
    $
    87,801Vendor receivables
    
    
    2,894
    
    
    
    2,575Other receivables
    
    
    2,588
    
    
    
    1,84791,827
    
    
    
    92,223Less: allowance for doubtful accounts and sales discounts
    
    
    7,043
    
    
    
    6,067Less: allowance for sales returns, net margin impact
    
    
    11,967
    
    
    
    9,350Total
    
    $
    72,817
    
    
    $
    76,806
 Note 9 Inventories
  March 31, 2009
    
    
    March 31, 2008Finished products
    
    $
    20,437
    
    
    $
    23,545Consigned inventory
    
    
    1,868
    
    
    
    2,569Raw materials
    
    
    4,427
    
    
    
    6,540Total
    
    $
    26,732
    
    
    $
    32,654
  79




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Note 10 Prepaid Expenses and Other Current Assets
  March 31, 2009
    
    
    March 31, 2008Prepaid royalties
    
    $
    9,826
    
    
    $
    11,297Other
    
    
    1,264
    
    
    
    821Total
    
    $
    11,090
    
    
    $
    12,118
 Note 11 Property and Equipment
  March 31, 2009
    
    
    March 31, 2008Furniture and fixtures
    
    $
    1,306
    
    
    $
    1,332Computer and office equipment
    
    
    17,782
    
    
    
    14,944Warehouse equipment
    
    
    10,116
    
    
    
    9,564Production equipment
    
    
    1,296
    
    
    
    917Leasehold improvements
    
    
    2,081
    
    
    
    2,060Construction in progress
    
    
    80
    
    
    
    2,848Total
    
    
    32,661
    
    
    
    31,665Less: accumulated depreciation and amortization
    
    
    16,704
    
    
    
    14,484Net property and equipment
    
    $
    15,957
    
    
    $
    17,181
 Note 12 Assets Held for Sale
  Note 13 Capitalized Software Development Costs
 Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed
 Note 14 License Fees
  March 31, 2009
    
    
    March 31, 2008License fees
    
    $
    39,298
    
    
    $
    40,110Less: accumulated amortization
    
    
    21,570
    
    
    
    19,595Total
    
    $
    17,728
    
    
    $
    20,515
  80




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##### Table of Contents



Accounting by Producers or
Distributors of Films
   Note 15 Production Costs
  March 31, 2009
    
    
    March 31, 2008Production costs
    
    $
    20,631
    
    
    $
    14,755Less: accumulated amortization
    
    
    12,223
    
    
    
    7,439Total
    
    $
    8,408
    
    
    $
    7,316
 Accounting by Producers or Distributors of Films
    81




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##### Table of Contents



Note 16 Accrued Expenses
  March 31, 2009
    
    
    March 31, 2008Compensation and benefits
    
    $
    3,263
    
    
    $
    3,818Royalties
    
    
    3,056
    
    
    
    7,830Rebates
    
    
    1,264
    
    
    
    1,955Deferred revenue
    
    
    303
    
    
    
    121Interest
    
    
    39
    
    
    
    495Other
    
    
    3,579
    
    
    
    1,899Total
    
    $
    11,504
    
    
    $
    16,118
 Note 17 Bank Financing and Debt
      82




---



##### Table of Contents



March 31, 2009
    
    
    March 31, 2008Note payable
    
    $
    
    
    
    $
    9,744Less: current portion
    
    
    
    
    
    
    150Total long  term debt
    
    $
    
    
    
    $
    9,594
 Letters of Credit
  Note 18 Derivative Instruments
  Note 19 Income Taxes
  Fiscal Years ended March 31,2009
    
    
    2008
    
    
    2007CurrentFederal
    
    $
    (4,020
    )
    
    $
    1,610
    
    
    $
    3,480Foreign
    
    
    
    
    
    
    300
    
    
    
    State
    
    
    60
    
    
    
    429
    
    
    
    664Deferred
    
    
    (10,523
    )
    
    
    2,934
    
    
    
    (1,550
    )Tax expense (benefit)
    
    $
    (14,483
    )
    
    $
    5,273
    
    
    $
    2,594
 83




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##### Table of Contents



Fiscal Years ended March 31,2009
    
    
    2008
    
    
    2007Expected federal income tax at statutory rate
    
    $
    (34,983
    )
    
    $
    4,315
    
    
    $
    2,107State income taxes, net of federal tax effect
    
    
    (2,140
    )
    
    
    523
    
    
    
    419Valuation allowance
    
    
    21,432
    
    
    
    
    
    
    
    Warrant expense
    
    
    
    
    
    
    
    
    
    
    85Equity compensation
    
    
    185
    
    
    
    222
    
    
    
    100Uncertain tax liability
    
    
    90
    
    
    
    97
    
    
    
    Other
    
    
    933
    
    
    
    116
    
    
    
    (117
    )Tax expense (benefit)
    
    $
    (14,483
    )
    
    $
    5,273
    
    
    $
    2,594
 Fiscal Years ended March 31,2009
    
    
    2008
    
    
    2007Expected federal income tax at statutory rate
    
    
    34.0
    %
    
    
    35.0
    %
    
    
    34.0
    %State income taxes, net of federal tax effect
    
    
    2.1
    
    
    
    4.2
    
    
    
    6.8Valuation allowance
    
    
    (20.8
    )
    
    
    
    
    
    
    Warrant expense
    
    
    
    
    
    
    
    
    
    
    1.4Equity compensation
    
    
    (.2
    )
    
    
    1.8
    
    
    
    1.6Other
    
    
    (1.0
    )
    
    
    1.8
    
    
    
    (1.9
    )14.1
    %
    
    
    42.8
    %
    
    
    41.9
    %
  Fiscal Years ended March 31,2009
    
    
    2008Net deferred tax asset (liability)  currentCollectibility reserves
    
    $
    7,970
    
    
    $
    6,886Reserve for inventory write-off
    
    
    1,263
    
    
    
    565Reserve for sales discounts
    
    
    58
    
    
    
    154Accrued vacations
    
    
    313
    
    
    
    381Inventory  uniform capitalization
    
    
    147
    
    
    
    154Incentive based deferred compensation
    
    
    776
    
    
    
    798Other
    
    
    226
    
    
    
    162Net operating loss carryforward
    
    
    3,535
    
    
    
    Subtotal deferred tax asset  current
    
    
    14,288
    
    
    
    9,100Valuation allowance
    
    
    (8,069
    )
    
    
    Total deferred tax asset  current
    
    
    6,219
    
    
    
    9,100Net deferred tax asset (liability)  non-currentIncentive based deferred compensation
    
    
    
    
    
    
    1,324Stock based compensation
    
    
    396
    
    
    
    262Book/tax intangibles amortization
    
    
    25,041
    
    
    
    (3,915
    )Book/tax depreciation
    
    
    (2,280
    )
    
    
    (791
    )Other
    
    
    505
    
    
    
    14Subtotal deferred tax asset (liability)  non-current
    
    
    23,662
    
    
    
    (3,106
    )Valuation allowance
    
    
    (13,363
    )
    
    
    Total deferred tax (liability)  non-current
    
    
    10,299
    
    
    
    (3,106
    )Total deferred tax asset
    
    $
    16,518
    
    
    $
    5,994
   84




---



##### Table of Contents



Balance at April 1, 2008
    
    $
    880Gross increases related to prior year tax positions
    
    
    101Gross increases related to current year tax positions
    
    
    203Decrease related to statue of limitations lapses
    
    
    (18
    )Balance at March 31, 2009
    
    $
    1,166
       85




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##### Table of Contents



Note 20 Shareholders Equity
   Note 21 Private Placement Warrants
  Note 22 Share-Based Compensation
  SFAS 123R.
 Equity Compensation Plans
   86




---



##### Table of Contents



Stock Options
  Fiscal year ended
    
    
    Fiscal year ended
    
    
    Fiscal year endedMarch 31, 2009
    
    
    March 31, 2008
    
    
    March 31, 2007Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    average
    
    
    
    
    
    
    averageNumber of
    
    
    exercise
    
    
    Number of
    
    
    exercise
    
    
    Number of
    
    
    exerciseoptions
    
    
    price
    
    
    options
    
    
    price
    
    
    options
    
    
    priceOptions outstanding, beginning of
period:
    
    
    3,132,499
    
    
    $
    6.78
    
    
    
    3,601,700
    
    
    $
    6.92
    
    
    
    3,341,100
    
    
    $
    7.17Granted
    
    
    782,500
    
    
    
    0.83
    
    
    
    429,000
    
    
    
    2.68
    
    
    
    842,000
    
    
    
    4.79Exercised
    
    
    (9,600
    )
    
    
    1.26
    
    
    
    (237,448
    )
    
    
    1.48
    
    
    
    (301,200
    )
    
    
    1.55Canceled
    
    
    (739,871
    )
    
    
    4.65
    
    
    
    (660,753
    )
    
    
    6.77
    
    
    
    (280,200
    )
    
    
    9.32Options outstanding, end of period
    
    
    3,165,528
    
    
    
    5.74
    
    
    
    3,132,499
    
    
    
    6.78
    
    
    
    3,601,700
    
    
    
    6.92Options exercisable, end of period
    
    
    2,071,203
    
    
    $
    7.79
    
    
    
    2,296,565
    
    
    $
    7.89
    
    
    
    2,634,933
    
    
    $
    7.86Shares available for future
grant, end of period
    
    
    1,334,672
    
    
    
    
    
    
    
    1,827,501
    
    
    
    
    
    
    
    461,000
   87




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##### Table of Contents



Restricted Stock
   Fiscal year ended
    
    
    Fiscal year ended
    
    
    Fiscal year endedMarch 31, 2009
    
    
    March 31, 2008
    
    
    March 31, 2007Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    average
    
    
    
    
    
    
    averagegrant date
    
    
    
    
    
    
    grant date
    
    
    
    
    
    
    grant dateShares
    
    
    fair value
    
    
    Shares
    
    
    fair value
    
    
    Shares
    
    
    fair valueUnvested, beginning of period:
    
    
    171,917
    
    
    $
    3.02
    
    
    
    120,000
    
    
    $
    4.68
    
    
    
    
    
    
    $
    Granted
    
    
    390,250
    
    
    
    0.69
    
    
    
    131,000
    
    
    
    2.41
    
    
    
    151,000
    
    
    
    4.60Vested
    
    
    (63,932
    )
    
    
    3.23
    
    
    
    (73,333
    )
    
    
    4.41
    
    
    
    (6,000
    )
    
    
    4.29Forfeited
    
    
    (53,080
    )
    
    
    1.11
    
    
    
    (5,750
    )
    
    
    2.41
    
    
    
    (25,000
    )
    
    
    4.29Unvested, end of period
    
    
    445,155
    
    
    $
    1.18
    
    
    
    171,917
    
    
    $
    3.02
    
    
    
    120,000
    
    
    $
    4.68
    Restricted Stock Units  Performance Based
  88




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##### Table of Contents



Share-Based Compensation Valuation and Expense Information
  Fiscal Year
    
    Fiscal Year
    
    Fiscal YearEnded
    
    Ended
    
    EndedMarch 31,
    
    March 31,
    
    March 31,2009
    
    2008
    
    2007Expected life (in years)
    
    
    5.0
    
    
    
    5.0
    
    
    
    5.0Expected volatility
    
    
    66
    %
    
    
    67
    %
    
    
    69
    %Risk-free interest rate
    
    
    2.512.87
    %
    
    
    2.535.02
    %
    
    
    4.455.19
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
   Note 23 401(k) Plan
  Note 24 Commitments and Contingencies
 Leases
  89




---



##### Table of Contents



2010
    
    $
    2,8682011
    
    
    2,5192012
    
    
    2,5342013
    
    
    2,5682014
    
    
    2,619Thereafter
    
    
    11,170$
    24,278
 Litigation and Proceedings
  SEC Investigation
  Note 25 Capital Leases
  March 31, 2009
    
    
    March 31, 2008Computer and office equipment
    
    $
    314
    
    
    $
    487Less: accumulated amortization
    
    
    113
    
    
    
    392Net property and equipment
    
    $
    201
    
    
    $
    95
  Minimum LeaseCommitmentsYear ending March 31:2010
    
    $
    1062011
    
    
    552012
    
    
    472013
    
    
    23Total minimum lease payments
    
    $
    231Less: amounts representing interest at rates ranging from 6.9% to 31.6%
    
    
    26Present value of minimum capital lease payments
    
    $
    205Less: current installments
    
    
    90Obligations under capital lease, less current installments
    
    $
    115
 90




---



##### Table of Contents



Note 26 Related Party Transactions
 Employment/Severance Agreements
     Employment Agreement  FUNimation
  Note 27 Major Customers
  Note 28 Business Segments
  91




---



##### Table of Contents



Publishing
    
    Distribution
    
    Eliminations
    
    ConsolidatedFiscal Year 2009Net sales
    
    $
    102,828
    
    
    $
    592,893
    
    
    $
    (64,730
    )
    
    $
    630,991Income (loss) from continuing operations
    
    
    (98,261
    )
    
    
    1,143
    
    
    
    
    
    
    
    (97,118
    )Income (loss) from continuing operations
before income taxes
    
    
    (102,433
    )
    
    
    (484
    )
    
    
    
    
    
    
    (102,917
    )Depreciation and amortization expense
    
    
    6,912
    
    
    
    4,060
    
    
    
    
    
    
    
    10,972Restructuring, impairment and other charges
    
    
    110,511
    
    
    
    591
    
    
    
    
    
    
    
    111,102Capital expenditures
    
    
    584
    
    
    
    2,960
    
    
    
    
    
    
    
    3,544Total assets
    
    
    50,204
    
    
    
    131,401
    
    
    
    1,564
    
    
    
    183,169Publishing
    
    Distribution
    
    Eliminations
    
    ConsolidatedFiscal Year 2008Net sales
    
    $
    117,423
    
    
    $
    611,007
    
    
    $
    (69,958
    )
    
    $
    658,472Income from continuing operations
    
    
    12,693
    
    
    
    5,138
    
    
    
    
    
    
    
    17,831Income from continuing operations before
income taxes
    
    
    8,449
    
    
    
    3,880
    
    
    
    
    
    
    
    12,329Depreciation and amortization expense
    
    
    6,307
    
    
    
    3,280
    
    
    
    
    
    
    
    9,587Restructuring, impairment and other charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital expenditures
    
    
    1,100
    
    
    
    7,462
    
    
    
    
    
    
    
    8,562Total assets
    
    
    176,907
    
    
    
    221,912
    
    
    
    (115,357
    )
    
    
    283,462Publishing
    
    Distribution
    
    Eliminations
    
    ConsolidatedFiscal Year 2007Net sales
    
    $
    126,651
    
    
    $
    587,881
    
    
    $
    (69,742
    )
    
    $
    644,790Income from continuing operations
    
    
    10,089
    
    
    
    6,273
    
    
    
    
    
    
    
    16,362Income (loss) from continuing operations
before income taxes
    
    
    10,517
    
    
    
    (4,319
    )
    
    
    
    
    
    
    6,198Depreciation and amortization expense
    
    
    8,342
    
    
    
    2,616
    
    
    
    
    
    
    
    10,958Restructuring, impairment and other charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital expenditures
    
    
    498
    
    
    
    6,555
    
    
    
    
    
    
    
    7,053Total assets
    
    
    155,742
    
    
    
    235,623
    
    
    
    (103,140
    )
    
    
    288,225
 92




---



##### Table of Contents



Note 29 Quarterly Data  Seasonality (Unaudited)
    Quarter EndedJune 30
    
    
    September 30
    
    
    December 31
    
    
    March 31Fiscal Year 2009Net sales
    
    $
    142,025
    
    
    $
    170,296
    
    
    $
    171,580
    
    
    $
    147,090Gross profit (loss)
    
    
    22,126
    
    
    
    24,230
    
    
    
    (1,154
    )
    
    
    21,845Income (loss) from operations
    
    
    2,753
    
    
    
    (70,191
    )
    
    
    (31,965
    )
    
    
    2,285Net income (loss) from continuing operations
    
    
    627
    
    
    
    (44,508
    )
    
    
    (47,724
    )
    
    
    3,171Discontinued operations, net of taxGain (loss) on sale of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    627
    
    
    $
    (44,508
    )
    
    $
    (47,724
    )
    
    $
    3,171Basic earnings (loss) per common share:Continuing operations
    
    $
    0.02
    
    
    $
    (1.23
    )
    
    $
    (1.32
    )
    
    $
    0.09Discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Net income (loss)
    
    $
    0.02
    
    
    $
    (1.23
    )
    
    $
    (1.32
    )
    
    $
    0.09Diluted earnings (loss) per common share:Continuing operations
    
    $
    0.02
    
    
    $
    (1.23
    )
    
    $
    (1.32
    )
    
    $
    0.09Discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Net income (loss)
    
    $
    0.02
    
    
    $
    (1.23
    )
    
    $
    (1.32
    )
    
    $
    0.09Restructuring, impairment and other charges
    
    
    
    
    
    
    73,412
    
    
    
    34,582
    
    
    
    3,108
 Quarter EndedJune 30
    
    
    September 30
    
    
    December 31
    
    
    March 31Fiscal Year 2008Net sales
    
    $
    137,022
    
    
    $
    143,715
    
    
    $
    217,547
    
    
    $
    160,188Gross profit
    
    
    23,983
    
    
    
    22,061
    
    
    
    31,634
    
    
    
    23,881Income (loss) from operations
    
    
    4,603
    
    
    
    1,625
    
    
    
    8,622
    
    
    
    2,981Net income from continuing operations
    
    
    1,906
    
    
    
    222
    
    
    
    4,009
    
    
    
    919Discontinued operations, net of taxGain (loss) on sale of discontinued operations
    
    
    4,647
    
    
    
    (3
    )
    
    
    70
    
    
    
    178Loss from discontinued operations
    
    
    (1,109
    )
    
    
    (594
    )
    
    
    (176
    )
    
    
    (411
    )Net income (loss)
    
    $
    5,444
    
    
    $
    (375
    )
    
    $
    3,903
    
    
    $
    686Basic earnings (loss) per common share:Continuing operations
    
    $
    0.05
    
    
    $
    0.01
    
    
    $
    0.11
    
    
    $
    0.03Discontinued operations
    
    $
    0.10
    
    
    $
    (0.02
    )
    
    $
    
    
    
    $
    (0.01
    )Net income (loss)
    
    $
    0.15
    
    
    $
    (0.01
    )
    
    $
    0.11
    
    
    $
    0.02Diluted earnings (loss) per common share:Continuing operations
    
    $
    0.05
    
    
    $
    0.01
    
    
    $
    0.11
    
    
    $
    0.03Discontinued operations
    
    $
    0.10
    
    
    $
    (0.02
    )
    
    $
    
    
    
    $
    (0.01
    )Net income (loss)
    
    $
    0.15
    
    
    $
    (0.01
    )
    
    $
    0.11
    
    
    $
    0.02Restructuring, impairment and other charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 93




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##### Table of Contents



Navarre Corporation
Schedule II  Valuation and Qualifying Accounts and Reserves
 Balance at
    
    
    Charged to
    
    
    
    
    
    
    Balance atBeginning
    
    
    Costs and
    
    
    Additions/
    
    
    End ofDescription
    
    of Period
    
    
    Expenses
    
    
    (Deductions)
    
    
    PeriodYear ended March 31, 2009:Deducted from asset accounts:Allowance for doubtful accounts
    
    $
    1,332
    
    
    $
    742
    
    
    $
    (345
    )
    
    $
    1,729Allowance for sales returns
    
    
    9,350
    
    
    
    14,177
    
    
    
    (11,560
    )
    
    
    11,967Allowance for MDF and sales discounts
    
    
    4,736
    
    
    
    16,417
    
    
    
    (15,839
    )
    
    
    5,314Total
    
    $
    15,418
    
    
    $
    31,336
    
    
    $
    (27,744
    )
    
    $
    19,010Year ended March 31, 2008:Deducted from asset accounts:Allowance for doubtful accounts
    
    $
    1,036
    
    
    $
    32
    
    
    $
    264
    
    
    $
    1,332Allowance for sales returns
    
    
    11,983
    
    
    
    10,373
    
    
    
    (13,006
    )
    
    
    9,350Allowance for MDF and sales discounts
    
    
    5,265
    
    
    
    17,721
    
    
    
    (18,250
    )
    
    
    4,736Total
    
    $
    18,284
    
    
    $
    28,126
    
    
    $
    (30,992
    )
    
    $
    15,418Year ended March 31, 2007:Deducted from asset accounts:Allowance for doubtful accounts
    
    $
    1,532
    
    
    $
    3,761
    
    
    $
    (4,257
    )
    
    $
    1,036Allowance for sales returns
    
    
    12,163
    
    
    
    14,669
    
    
    
    (14,849
    )
    
    
    11,983Allowance for MDF and sales discounts
    
    
    4,736
    
    
    
    20,533
    
    
    
    (20,004
    )
    
    
    5,265Total
    
    $
    18,431
    
    
    $
    38,963
    
    
    $
    (39,110
    )
    
    $
    18,284
 94