##### 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, 2008
 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
(State or other jurisdiction of 
incorporation or organization)
    
    41-1704319
(IRS Employer
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
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   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
    
    22Item 2.
    
    Properties
    
    22Item 3.
    
    Legal Proceedings
    
    22Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    23PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities
    
    24Item 6.
    
    Selected Financial Data
    
    26Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    26Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    43Item 8.
    
    Financial Statements and Supplementary Data
    
    43Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    43Item 9A.
    
    Controls and Procedures
    
    43Item 9B.
    
    Other Information
    
    44PART IIIItem 10.
    
    Directors. Executive Officers of the Registrant, and Corporate Governance
    
    45Item 11.
    
    Executive Compensation
    
    45Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    45Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    45Item 14.
    
    Principal Accountant Fees and Services
    
    45PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    46Signatures
    
    53Exhibit Listing
    
    47Fiscal Year 2009 Annual Management Incentive PlanForm of Amendment and Limited WaiverSubsidiariesConsent of Independent Registered Public Accounting Firm302 Certification of Chief Executive Officer302 Certification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer
  2




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PART I
 
 Item 1  Business
 Overview
   Information About Our Segments
  Distribution.
  Publishing Print Shop, Print
Master, Mavis Beacon Teaches Typing, Family Tree Maker, Diner Dash, Monopoly, Scrabble, Wheel of
Fortune Hoyle PC Gaming He-Man and the Masters of the Universe, Pride Fighting
Championship, UFCs The Ultimate Fighter, Classic Cartoons anim Dragon Ball Z, Fullmetal Alchemist, Trinity Blood, Samari 7,
Afro Samurai, Black Blood Brothers, Claymore, D Grayman, Darker Than Black, One Piece, Shin Chan, Robotech.
 3




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##### Table of Contents



Other Consolidation of Variable Interest Entities
 Business Strategy
  
    
    Acquisitions of Attractive Content.We seek to continue to expand our publishing
business through the acquisition 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. We may also seek selective acquisitions of distribution businesses.
    
    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,
including new technology standards such as RFID (radio frequency identification devices)
and VMI (vendor managed inventory), we believe many publishers will be required to decide
whether to spend additional resources to update their distribution capabilities or to
select a distributor, such as us, that intends to offer such services. We believe
implementing and offering these and other technologies should position us to capture
additional business from existing and new publishers.
  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 advanced distribution infrastructure enables us to
provide customized
 4




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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 software titles. Encore publishes leading
titles in the education, productivity, kids and games software categories, including Print
Shop, Print Master, Family Tree Maker, Mavis Beacon Teaches Typing, Monopoly, Wheel of
Fortune, Diner Dash,and Hoyle PC Gamingproducts.In addition, BCI currently publishes
home video for He-Man and the Masters of the Universe, independent feature films such as
Spirited Killer, films in the Latin genre, UFCs The Ultimate Fighterand PRIDE Fighting
Championships,featured on Pay-Per-View. Through FUNimation we also license and distribute
a portfolio of established animeand childrens entertainment titles in the United States,
including Dragon Ball Z, Fullmetal Alchemist, Trinity Blood, Samari 7, Afro Samurai, One
Piece, Shin Chanand Robotech.FUNimation also distributes live action films such as
Shinobi, Genghis Khan, Love and Honorand Hana.Other live action titles include Canadian
TV series Degrassiand Instant Star.FUNimation also has over twenty Blu-ray titles
scheduled for release during fiscal year ending March 31, 2009.
    
    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, Circuit City, Staples and Office Depot, 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 industry-leading home entertainment and
multimedia products to our retail customers and provide access to attractive retail
channels 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 new enterprise resource planning (ERP) system which is anticipated to 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.
 Distribution Markets
 PC Software
    5




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Video Games Software and Accessories
   Home Video
   Major Label Music
  Independent Label Music
  Customers
 www.navarre.com
  Navarres Distribution Business Model
 Vendor Relationships
  6




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Retail Services
   Warehouse Systems
  E-Commerce
 www.navarre.com
 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 Hoyle PC Gaming .
 7




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Hoyle
 BCI
  He-Man and
the Masters of the Universe, Classic Cartoons, Spirited Killer, UFCs The Ultimate Fighter PRIDE Fighting Championships
 FUNimation
 anime Dragon Ball Z, Fullmetal Alchemist, Trinity Blood,
Samari 7, Basilisk, Yu Yu Hakusho, Negima, Afro Samurai, Shin Chan, Black Blood Brothers, Claymore,
Darker Than Black, Robotech.
 anime anime anime
 Home Video Distribution
 Broadcast anime
 Licensing and Merchandising
 Retail Sales and Web Sites anime
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,
 Competition
  
    
    obtain exclusive national distribution contracts;
    
    obtain proprietary publishing rights with various rights holders and brand owners;
    
    maintain our margins and volume;
    
    expand our sales through a varied range of products and personalized services;
    
    anticipate changes in the marketplace including technological developments and consumer
interest in our proprietary products; and
    
    maintain operating expenses at an appropriate level.
   Backlog
  Environmental Matters
  Employees
  Capital Resources  Financing
   9




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Available Information
 www.navarre.com
 Executive Officers of the Company
  Name
    
    Age
    
    PositionCary L. Deacon
    
    56
    
    President and Chief Executive OfficerJ. Reid Porter
    
    59
    
    Executive Vice President, Chief Financial OfficerBrian M.T. Burke
    
    37
    
    Chief Operating OfficerJoyce Fleck
    
    55
    
    President of Navarre DistributionCalvin Morrell
    
    52
    
    President of EncoreGen Fukunaga
    
    47
    
    Chief Executive Officer and President of FUNimationBob Freese
    
    52
    
    President of BCIJohn Turner
    
    54
    
    Senior Vice President of Global LogisticsRyan F. Urness
    
    36
    
    General Counsel and Secretary
 Cary L. Deacon
 10




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J. Reid Porter
 Brian M. T. Burke
 Joyce Fleck
 Calvin Morrell
 Gen Fukunaga
 Bob Freese
 John Turner
 Ryan F. Urness
 11




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




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Pending SEC investigation or litigation may subject us to significant costs, judgments or penalties
and could divert managements attention.
  Revenues are dependent on consumer preferences and demand.
 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 an adequate degree of
popularity; or
    
    any propertys life cycle will be sufficient to permit adequate profitably to recover
advance payments, guarantees, development, marketing, royalties and other costs.
  Our business is seasonal and variable in nature and, as a result, the level of sales and payment
terms during our peak season could adversely affect our results of operations and liquidity.
  13




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
    
    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.
 A substantial portion of FUNimations revenues typically 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.
  14




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Increased counterfeiting or piracy may negatively affect the demand for our home entertainment
products.
  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.
  15




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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.
    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.
  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.
  16




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
    
    obtain exclusive national distribution contracts and licenses with
manufacturers/vendors;
    
    obtain proprietary publishing rights with various rights holders and brand owners;
    
    maintain our margins and volume;
    
    expand our sales through a varied range of products and personalized services;
    
    anticipate changes in the marketplace including technological developments and consumer
interest in our proprietary products; and
    
    maintain operating expenses at an appropriate level.
  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.
   17




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We are implementing a new warehouse and transportation management system. Failure to implement the
new system in an effective and a timely fashion could adversely affect our results of operations
and timely reporting of financial results.
  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.
  18




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Future terrorist or military actions could result in disruption to our operations or loss of
assets, in certain markets or globally.
  Legislative actions, higher director and officer insurance costs and potential new accounting
pronouncements are likely to cause our general and administrative expenses to increase and impact
our future financial condition and results of operations.
   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.
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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 will
adversely affect our leveraged capital structure.
  We may be unable to generate sufficient cash flow to service our debt obligations.
    
    
    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.
  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.
  20




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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.
   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
  21




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Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
 Distribution
  Publishing
    
 Item 3. Legal Proceedings
  SEC Investigation
  22




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Sybersound Records, Inc. v. BCI Eclipse, LLC, et al.
      Securities Litigation Lawsuits
    
 Item 4. Submission of Matters to a Vote of Security Holders
  23




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Item 5. Market for Registrants Common Equity, and Related Stockholder Matters and Issuer Purchase
of Equity Securities
 Common Stock
  Quarter
    
    High
    
    LowFiscal 2008
    
    First
    
    $
    4.45
    
    
    $
    3.78Second
    
    
    4.10
    
    
    
    3.62Third
    
    
    3.90
    
    
    
    2.02Fourth
    
    
    2.00
    
    
    
    1.57Fiscal 2007
    
    First
    
    
    4.98
    
    
    
    3.30Second
    
    
    5.18
    
    
    
    3.38Third
    
    
    5.06
    
    
    
    3.98Fourth
    
    
    4.24
    
    
    
    3.60
 Holders
  Dividend Policy
  Comparative Stock Performance
   24




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COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
 
 
 *
    
    $100 invested on 3/31/03 in stock or index-including reinvestment of dividends.
Fiscal year ending March 31. 3/03
    
    3/04
    
    3/05
    
    3/06
    
    3/07
    
    3/08Navarre Corporation
    
    
    100.00
    
    
    
    348.82
    
    
    
    467.65
    
    
    
    252.35
    
    
    
    220.59
    
    
    
    103.53NASDAQ Composite
    
    
    100.00
    
    
    
    151.01
    
    
    
    152.38
    
    
    
    181.06
    
    
    
    189.63
    
    
    
    177.49Peer Group
    
    
    100.00
    
    
    
    167.28
    
    
    
    157.33
    
    
    
    151.71
    
    
    
    149.68
    
    
    
    136.60
 Source: Research Data Group, Inc.
 Purchases of Equity Securities
  Equity Compensation Plan Information
   Number of securitiesWeighted-average
    
    
    remaining available forexercise
    
    
    future issuance underNumber of securities to be
    
    
    price of
    
    
    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
    
    
    3,304,416
    
    
    $
    6.78
    
    
    
    1,827,501Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    3,304,416
    
    
    $
    6.78
    
    
    
    1,827,501
 25




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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 31,2008
    
    
    2007
    
    
    2006(1)
    
    
    2005
    
    
    2004Statement
of operations data (2):Net sales
    
    $
    658,472
    
    
    $
    644,790
    
    
    $
    615,557
    
    
    $
    532,249
    
    
    $
    409,578Gross profit, exclusive of depreciation and amortization
    
    
    101,559
    
    
    
    107,357
    
    
    
    101,425
    
    
    
    81,915
    
    
    
    48,234Income from operations
    
    
    17,831
    
    
    
    16,362
    
    
    
    6,767
    
    
    
    9,494
    
    
    
    5,410Interest expense
    
    
    (6,127
    )
    
    
    (10,220
    )
    
    
    (11,217
    )
    
    
    (783
    )
    
    
    (378
    )Other income (expense)
    
    
    625
    
    
    
    56
    
    
    
    2,764
    
    
    
    (138
    )
    
    
    (820
    )Income
(loss) from continuing operations
    
    
    12,329
    
    
    
    6,198
    
    
    
    (1,686
    )
    
    
    8,573
    
    
    
    4,212Income tax benefit (expense)
    
    
    (5,273
    )
    
    
    (2,594
    )
    
    
    654
    
    
    
    942
    
    
    
    394Net income (loss) from continuing operations
    
    
    7,056
    
    
    
    3,604
    
    
    
    (1,032
    )
    
    
    9,515
    
    
    
    4,606Gain on sale of discontinued operations
    
    
    4,892
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) from discontinued operations
    
    
    (2,290
    )
    
    
    455
    
    
    
    (2,143
    )
    
    
    651
    
    
    
    2,208Net income (loss)
    
    $
    9,658
    
    
    $
    4,059
    
    
    $
    (3,175
    )
    
    $
    10,166
    
    
    $
    6,814Basic earnings (loss) per common share:Continuing operations
    
    $
    .20
    
    
    $
    .10
    
    
    $
    (.04
    )
    
    $
    .36
    
    
    $
    .20Discontinued operations
    
    
    .07
    
    
    
    .01
    
    
    
    (.07
    )
    
    
    .02
    
    
    
    .10Net income (loss)
    
    $
    .27
    
    
    $
    .11
    
    
    $
    (.11
    )
    
    $
    .38
    
    
    $
    .30Diluted earnings (loss) per common share:Continuing operations
    
    $
    .20
    
    
    $
    .10
    
    
    $
    (.04
    )
    
    $
    .33
    
    
    $
    .19Discontinued operations
    
    
    .07
    
    
    
    .01
    
    
    
    (.07
    )
    
    
    .02
    
    
    
    .09Net income (loss)
    
    $
    .27
    
    
    $
    .11
    
    
    $
    (.11
    )
    
    $
    .35
    
    
    $
    .28Weighted average shares outstanding:Basic
    
    
    36,105
    
    
    
    35,786
    
    
    
    29,898
    
    
    
    26,830
    
    
    
    22,780Diluted
    
    
    36,269
    
    
    
    36,228
    
    
    
    29,898
    
    
    
    28,782
    
    
    
    24,112Balance sheet data:Total assets
    
    $
    283,462
    
    
    $
    288,225
    
    
    $
    309,614
    
    
    $
    195,892
    
    
    $
    154,579Shortterm debt
    
    
    31,523
    
    
    
    39,208
    
    
    
    5,115
    
    
    
    334
    
    
    
    651Longterm debt
    
    
    9,654
    
    
    
    14,970
    
    
    
    75,352
    
    
    
    237
    
    
    
    Temporary
equity  Unregistered common stock (3)
    
    
    
    
    
    
    
    
    
    
    16,634
    
    
    
    
    
    
    
    Shareholders equity
    
    
    124,411
    
    
    
    113,451
    
    
    
    88,906
    
    
    
    77,284
    
    
    
    53,078
 
 (1)
    
    Includes acquisition of FUNimation completed May 11, 2005 (see Note 3 to the consolidated
financial statements).(2)
    
    All periods have been restated for discontinued operations.(3)
    
    See Note 21 to the consolidated financial statements. 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
  26




---



##### Table of Contents



Distribution.
  Publishing Print Shop, Print Master, Mavis Beacon Teaches Typing, Family
Tree Maker, Diner Dash, Monopoly, Scrabble, Wheel of Fortune Hoyle PC Gaming He-Man and the Masters of the Universe, Pride
Fighting Championship, UFCs The Ultimate Fighter, Classic Cartoons Spirited Killer anime Dragon Ball
Z, Fullmetal Alchemist, Trinity Blood, Samari 7, Afro Samurai, Black Blood Brothers, Claymore, D
Grayman, Darker Than Black, One Piece, Shin Chan Robotech.
 Other
 Overall Summary of Fiscal 2008 Financial Results
   27




---



##### Table of Contents



Share-Based Payment
 Discontinued Operations
 Accounting for the Impairment of Disposal of Long-Lived Assets
    Working Capital and Debt
  Critical Accounting Policies and Estimates
  28




---



##### Table of Contents



Revenue Recognition
    Accounting by
Producers or Distributors of Films.
 Production Costs and License Fees  FUNimation
     29




---



##### Table of Contents



SOP 00-2
 Allowance for Doubtful Accounts
  Goodwill and Intangible Assets
   Impairment of Long-Lived Assets
  Inventory Valuation
  30




---



##### 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
 Contingencies and Litigation
  31




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##### Table of Contents



Recently Issued Accounting Pronouncements Not Yet Adopted
  The Fair Value Option for
Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115
   
    
    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;
 32




---



##### Table of Contents




    
    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.
   The Hierarchy of Generally Accepted Accounting Principles The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles
 Accounting for Financial Guarantee Insurance Contracts Accounting and Reporting by Insurance Enterprises
 Reconciliation of GAAP Net Sales to Net Sales Before Inter-Company Eliminations
  33




---



##### Table of Contents



Year Ended(Unaudited)
    
    March 31,
    
    
    March 31,
    
    
    March 31,(In thousands)
    
    2008
    
    
    2007
    
    
    2006Net salesDistribution
    
    $
    611,007
    
    
    $
    587,881
    
    
    $
    551,170Publishing
    
    
    117,423
    
    
    
    126,651
    
    
    
    127,612Other
    
    
    
    
    
    
    
    
    
    
    424Net sales before inter-company eliminations
    
    
    728,430
    
    
    
    714,532
    
    
    
    679,206Inter-company sales
    
    
    (69,958
    )
    
    
    (69,742
    )
    
    
    (63,649
    )Net sales as reported
    
    $
    658,472
    
    
    $
    644,790
    
    
    $
    615,557
 Results of Operations
  Fiscal Years Ended March 31,2008
    
    
    2007
    
    
    2006Net sales:Distribution
    
    
    92.8
    %
    
    
    91.2
    %
    
    
    89.5
    %Publishing
    
    
    17.8
    
    
    
    19.6
    
    
    
    20.7Other
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.1Inter-company sales
    
    
    (10.6
    )
    
    
    (10.8
    )
    
    
    (10.3
    )Total net sales
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of sales, exclusive of depreciation and amortization
    
    
    84.6
    
    
    
    83.4
    
    
    
    83.6Gross profit
    
    
    15.4
    
    
    
    16.6
    
    
    
    16.4Operating ExpensesSelling and marketing
    
    
    4.2
    
    
    
    4.4
    
    
    
    4.5Distribution and warehousing
    
    
    1.8
    
    
    
    1.9
    
    
    
    1.6General and administrative
    
    
    5.3
    
    
    
    5.5
    
    
    
    5.8Bad debt
    
    
    
    
    
    
    0.6
    
    
    
    2.0Depreciation and amortization
    
    
    1.4
    
    
    
    1.7
    
    
    
    1.5Total operating expenses
    
    
    12.7
    
    
    
    14.1
    
    
    
    15.4Income from operations
    
    
    2.7
    
    
    
    2.5
    
    
    
    1.0Interest expense
    
    
    (0.9
    )
    
    
    (1.6
    )
    
    
    (1.8
    )Interest income
    
    
    
    
    
    
    0.1
    
    
    
    0.2Deconsolidation of variable interest entity
    
    
    
    
    
    
    
    
    
    
    0.3Warrant expense
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Other income (expense), net
    
    
    
    
    
    
    
    
    
    
    0.1Income (loss) from continuing operations  before taxes
    
    
    1.8
    
    
    
    1.0
    
    
    
    (0.3
    )Income tax (expense) benefit
    
    
    (0.8
    )
    
    
    (0.4
    )
    
    
    0.1Net income (loss) from continuing operations
    
    
    1.0
    
    
    
    0.6
    
    
    
    (0.2
    )Discontinued operations, net of taxGain on sale of discontinued operations
    
    
    0.8
    
    
    
    
    
    
    
    Income (loss) from discontinued operations
    
    
    (0.3
    )
    
    
    
    
    
    
    (0.3
    )Net income (loss)
    
    
    1.5
    %
    
    
    0.6
    %
    
    
    (0.5
    )%
  34




---



##### Table of Contents



Distribution Segment
  Fiscal 2008 Results Compared With Fiscal 2007
 Net Sales
  Gross Profit
  Operating Expenses
       35




---



##### Table of Contents



Operating Income (Loss)
  Fiscal 2007 Results Compared With Fiscal 2006
  Gross Profit
  Operating Expenses
       36




---



##### Table of Contents



Operating Income (Loss)
  Publishing Segment
  Fiscal 2008 Results Compared With Fiscal 2007
 Net Sales
 anime Afro Samurai, Fullmetal Alchemist, Witchblade, Dragon
Ball Z
 Gross Profit
  Operating Expenses
      Operating Income (Loss)
  37




---



##### Table of Contents



Fiscal 2007 Results Compared With Fiscal 2006
 Net Sales
 anime Black Cat, Basilisk, Fullmetal Panic, Trinity Blood Dragon Ball Z
 Gross Profit
  Operating Expenses
      Operating Income (Loss)
  Other Segment  Fiscal 2008 Results Compared With Fiscal 2007 and Fiscal 2007 Results Compared With
Fiscal 2006
   Consolidated Other Income and Expense for All Periods
  38




---



##### Table of Contents



Consolidated Income Tax Expense or Benefit from Continuing Operations for All Periods
  Consolidated
Net Income (Loss) from Continuing Operations
  Discontinued Operations
  Consolidated Net Income (Loss) for All Periods
  Market Risk
  Seasonality and Inflation
  39




---



##### Table of Contents



Liquidity and Capital Resources
 Cash Flow Analysis
 Operating Activities
     Investing Activities
   40




---



##### Table of Contents



Financing Activities
     Discontinued Operations
  Capital Resources
     41




---



##### Table of Contents



Liquidity
    Contractual Obligations
  1
    
    
    2  3
    
    
    4  5
    
    
    More than 5Total
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    YearsOperating leases
    
    $
    26,951
    
    
    $
    2,706
    
    
    $
    5,354
    
    
    $
    5,102
    
    
    $
    13,789Capital leases
    
    
    144
    
    
    
    77
    
    
    
    67
    
    
    
    
    
    
    
    Note payable
    
    
    9,744
    
    
    
    150
    
    
    
    9,594
    
    
    
    
    
    
    
    License and distribution agreements
    
    
    22,308
    
    
    
    11,922
    
    
    
    7,636
    
    
    
    2,750
    
    
    
    Deferred compensation
    
    
    5,571
    
    
    
    2,089
    
    
    
    3,482
    
    
    
    
    
    
    
    Total
    
    $
    64,718
    
    
    $
    16,944
    
    
    $
    26,133
    
    
    $
    7,852
    
    
    $
    13,789
  42




---



##### Table of Contents



Item 7A  Quantitative and Qualitative Disclosures About Market Risk
 Market Risk.
 Interest Rate Risk.
 Foreign Currency Risk
  
 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
  43




---



##### 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
 Entry into a Material Definitive Agreement and Creation of a Direct Financial Obligation
    44




---



##### Table of Contents



PART III
 
 Item 10. Directors, Executive Officers of the Registrant and Corporate Governance
      
 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 Accountant Fees and Services
  45




---



##### 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, 2008 and 2007.(iii)
    
    Consolidated Statements of Operations for the years ended March 31,
2008, 2007 and 2006(iv)
    
    Consolidated Statements of Shareholders Equity and Comprehensive Income
(Loss) for the years ended March 31, 2006, 2007 and 2008.(v)
    
    Consolidated Statements of Cash Flows for the years ended March 31, 2008,
2007 and 2006.(vi)
    
    Notes to Consolidated Financial Statements
 (2)
    
    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.
 46




---



##### Table of Contents



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*
    
    Form of Individual Stock Option Agreement
under 1992 Stock Option Plan
    
    
    
    S-1
    
    
    
    
    10.4
    
    
    09/03/9310.4*
    
    Navarre Corporation Amended and Restated 2004
Stock Plan
    
    
    
    S-8
    
    
    
    
    4
    
    
    02/22/0610.5*
    
    Form of Employee Stock Option Agreement under
2004 Stock Plan
    
    
    
    10-K
    
    03/31/05
    
    
    10.58
    
    
    06/14/0510.6*
    
    Form of Non-Employee Director Stock Option
Agreement under 2004 Stock Plan
    
    
    
    10-K
    
    03/31/05
    
    
    10.59
    
    
    06/14/0510.7*
    
    Form of Employee Restricted Stock Agreement
under 2004 Stock Plan
    
    
    
    8-K
    
    
    
    
    10.2
    
    
    04/04/0610.8*
    
    Form of Director Restricted Stock Agreement
under 2004 Stock Plan
    
    
    
    8-K
    
    
    
    
    10.3
    
    
    04/04/0610.9*
    
    Form of TSR Stock Unit Agreement under 2004
Stock Plan
    
    
    
    8-K
    
    
    
    
    10.4
    
    
    04/04/06
 47




---



##### Table of Contents



Incorporated by referenceExhibit
    
    
    
    Filed
    
    
    
    Period
    
    
    
    
    
    Filingnumber
    
    Exhibit description
    
    herewith
    
    Form
    
    ending
    
    Exhibit
    
    date10.10*
    
    Form of Performance
Stock Unit
Agreement under
2004 Stock Plan
    
    
    
    8-K
    
    
    
    
    10.5
    
    
    04/04/0610.11*
    
    Form of Restricted
Stock Unit
Agreement under
2004 Stock Plan
    
    
    
    10-Q
    
    09/31/07
    
    
    10.1
    
    
    11/08/0710.12*
    
    Employment
Agreement dated
November 1, 2001
between the Company
and Eric H. Paulson
    
    
    
    10-Q
    
    12/31/01
    
    
    10.1
    
    
    02/13/0210.13*
    
    Amendment dated
December 28, 2006
to Employment
Agreement between
the Company and
Eric H. Paulson
    
    
    
    8-K
    
    
    
    
    99.2
    
    
    12/29/0610.14*
    
    Amendment dated
March 30, 2007 to
Employment
Agreement between
the Company and
Eric H. Paulson
    
    
    
    8-K
    
    
    
    
    99.1
    
    
    04/04/0710.15*
    
    Form of Separation
Agreement between
the Company and
Charles E. Cheney
    
    
    
    10-K
    
    03/31/04
    
    
    10.41
    
    
    06/29/0410.16*
    
    Form of
Post-Acquisition
Employment
Agreement among the
Company, FUNimation
Productions, Ltd.
and Gen Fukunaga
    
    
    
    8-K
    
    
    
    
    10.1
    (b)
    
    01/11/0510.17*
    
    Amended and
Restated Employment
Agreement dated
December 28, 2006
between the Company
and Cary L. Deacon
    
    
    
    8-K
    
    
    
    
    99.1
    
    
    12/29/0610.18*
    
    Amendment dated
January 29, 2007 to
Amended and
Restated Employment
Agreement between
the Company and
Cary L. Deacon
    
    
    
    8-K
    
    
    
    
    10.1
    
    
    01/30/0710.19*
    
    Amendment dated
March 20, 2008 to
Amended and
Restated Employment
Agreement between
the Company and
Cary L. Deacon
    
    
    
    8-K
    
    
    
    
    10.1
    
    
    03/21/0810.20*
    
    Amended and
Restated Executive
Severance Agreement
dated March 20,
2008 between the
Company and J. Reid
Porter
    
    
    
    8-K
    
    
    
    
    10.2
    
    
    03/21/0810.21*
    
    Executive Severance
Agreement dated
March 20, 2008
between the Company
and Brian Burke
    
    
    
    8-K
    
    
    
    
    10.3
    
    
    03/21/0810.22*
    
    Executive Severance
Agreement dated
March 20, 2008
between the Company
and John Turner
    
    
    
    8-K
    
    
    
    
    10.4
    
    
    03/21/08
 48




---



##### Table of Contents



Incorporated by referenceExhibit
    
    
    
    Filed
    
    
    
    Period
    
    
    
    
    
    Filingnumber
    
    Exhibit description
    
    herewith
    
    Form
    
    ending
    
    Exhibit
    
    date10.23*
    
    Form of Lock-Up Agreement
    
    
    
    8-K
    
    
    
    
    10.1
    
    
    03/23/0610.24*
    
    Fiscal Year 2007 Annual Management Incentive Plan
    
    
    
    8-K
    
    
    
    
    10.1
    
    
    04/04/0610.25*
    
    Fiscal Year 2008 Annual Management Incentive Plan
    
    
    
    8-K
    
    
    
    
    10.1
    
    
    07/12/0710.26*
    
    Fiscal Year 2009 Annual Management Incentive Plan
    
    X10.27
    
    Office/Warehouse Lease dated April 1, 1998
between the Company and Cambridge Apartments,
Inc.
    
    
    
    10-K
    
    03/31/99
    
    
    10.6
    
    
    06/29/9910.28
    
    Amendment dated September 27, 2001 to
Office/Warehouse Lease between the Company and
Cambridge Apartments, Inc.
    
    
    
    10-Q
    
    06/30/03
    
    
    10.9.1
    
    
    08/14/0310.29
    
    Agreement of Reciprocal Easements, Covenants,
Conditions and Restrictions dated June 16, 2003
    
    
    
    10-Q
    
    06/30/03
    
    
    10.9.3
    
    
    08/14/0310.30
    
    Amendment dated July 14, 2003 to
Office/Warehouse Lease between the Company and
Cambridge Apartments, Inc.
    
    
    
    10-Q
    
    06/30/03
    
    
    10.9.2
    
    
    08/14/0310.31
    
    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
    
    
    06/29/0410.32
    
    Form of Amendment dated June 2004 to
Office/Warehouse Lease between the Company and
Cambridge Apartments, Inc.
    
    
    
    10-K
    
    03/31/04
    
    
    10.49
    
    
    06/29/0410.33
    
    Addendum dated May 27, 2004 to Office/Warehouse
Lease between the Company and Cambridge
Apartments, Inc.
    
    
    
    10-K
    
    03/31/04
    
    
    10.51
    
    
    06/29/0410.34
    
    Amendment dated March 21, 2004 to
Office/Warehouse Lease between the Company and
Airport One Limited Partnership
    
    
    
    10-K
    
    03/31/04
    
    
    10.50
    
    
    06/29/0410.35
    
    Amendment dated November 23, 2004 to
Office/Warehouse Lease between the Company and
Airport One Limited Partnership
    
    
    
    10-Q
    
    12/31/04
    
    
    10.1
    
    
    02/14/0510.35
    
    Amendment dated February 2, 2006 to
Office/Warehouse Lease between the Company and
Airport One Limited Partnership
    
    
    
    10-Q
    
    12/31/05
    
    
    10.1
    
    
    02/09/06
 49




---



##### Table of Contents



Incorporated by referenceExhibit
    
    
    
    Filed
    
    
    
    Period
    
    
    
    
    
    Filingnumber
    
    Exhibit description
    
    herewith
    
    Form
    
    ending
    
    Exhibit
    
    date10.37
    
    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
    
    
    06/29/0410.38
    
    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
    
    
    11/19/0410.39
    
    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
    
    
    11/19/0410.40
    
    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
    
    
    11/19/0410.41
    
    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
    
    
    11/19/0410.42
    
    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
    
    
    02/14/0510.43
    
    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
    
    
    11/14/0510.44
    
    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
    
    
    06/14/0610.45
    
    Office Lease dated October 8, 2004 between Encore
Software, Inc. and Kilroy Realty, L.P.
    
    
    
    10-Q
    
    09/30/04
    
    
    10.57
    
    
    11/15/0410.46
    
    Amendment dated December 29, 2004 to Office Lease
between Encore Software, Inc. and Kilroy Realty,
L.P.
    
    
    
    10-Q
    
    12/31/04
    
    
    10.3
    
    
    02/14/0510.47
    
    Partnership Interest Purchase Agreement dated
January 10, 2005 among FUNimation Sellers and the
Company
    
    
    
    8-K
    
    
    
    
    10.1
    
    
    01/11/0510.48
    
    Form of Assignment and Assumption of FUNimation
Limited Partnership Interests
    
    
    
    8-K
    
    
    
    
    10.1
    (a)
    
    02/14/0510.49
    
    Form of FUNimation Sellers Non-Competition Agreement
    
    
    
    8-K
    
    
    
    
    10.1
    (d)
    
    02/14/05
 50




---



##### Table of Contents



Incorporated by referenceExhibit
    
    
    
    Filed
    
    
    
    Period
    
    
    
    
    
    Filingnumber
    
    Exhibit description
    
    herewith
    
    Form
    
    ending
    
    Exhibit
    
    date10.50
    
    Amendment dated May
11, 2005 to
Partnership
Interest Purchase
Agreement among
FUNimation Sellers
and the Company
    
    
    
    8-K
    
    
    
    
    10.47
    
    
    06/29/0410.51
    
    Memorandum of
Understanding dated
February 7, 2006
among FUNimation
Sellers and the
Company
    
    
    
    8-K
    
    
    
    
    99.1
    
    
    02/08/0610.52
    
    Office Lease dated
May 29, 2007
between FUNimation
Productions, Ltd.
and FMBP Industrial
I LP
    
    
    
    10-K
    
    03/31/07
    
    
    10.117
    
    
    06/14/0710.53
    
    Form of Securities
Purchase Agreement
dated March 2006
between the Company
and various
purchasers
    
    
    
    S-1
    
    
    
    
    4.2
    
    
    04/13/0610.54
    
    Form of
Registration Rights
Agreement dated
March 2006 between
the Company and
various purchasers
    
    
    
    S-1
    
    
    
    
    4.3
    
    
    04/13/0610.55
    
    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
    
    
    05/14/0710.56
    
    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
    
    
    03/23/0710.57
    
    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
    
    
    05/31/0710.58
    
    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
    
    
    08/13/0710.59
    
    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
    
    X10.60
    
    Form of Credit
Agreement dated
March 22, 2007
among the Company,
Monroe Capital
Advisors, LLC, as
Agent, and Lenders
    
    
    
    8-K
    
    
    
    
    10.2
    
    
    03/23/0710.61
    
    Limited Waiver
dated May 30, 2007
to Credit Agreement
among the Company,
Monroe Capital
Advisors, LLC, as
Agent, and Lenders
    
    
    
    8-K
    
    
    
    
    10.2
    
    
    05/31/07
 51




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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 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
    
    X23.1
    
    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 52




---



##### Table of Contents



SIGNATURES
  Navarre Corporation
(Registrant)June 16, 2008
    By
    /s/ Cary L. DeaconCary L. DeaconPresident and Chief Executive Officer  53




---



##### Table of Contents



POWER OF ATTORNEY
  Signature
    
    Title
    
    Date/s/ Cary L. Deacon
    
    President and Chief Executive Officer and DirectorCary L. Deacon
    
    (principal executive officer)
    
    June 16, 2008/s/ J. Reid Porter
    
    Chief Financial Officer (principal financial andJ. Reid Porter
    
    accounting officer)
    
    June 16, 2008/s/ Eric H. Paulson

Eric H. Paulson
    
    Chairman of the Board
    
    June 16, 2008/s/ Keith A. Benson

Keith A. Benson
    
    Director
    
    June 16, 2008/s/ Timothy R. Gentz

Timothy R. Gentz
    
    Director
    
    June 16, 2008/s/ James G. Sippl

James G. Sippl
    
    Director
    
    June 16, 2008/s/ Michael L. Snow

Michael L. Snow
    
    Director
    
    June 16, 2008/s/ Tom Weyl

Tom Weyl
    
    Director
    
    June 16, 2008/s/ Deborah L. Hopp

Deborah L. Hopp
    
    Director
    
    June 16, 2008/s/ Richard Gary St. Marie

Richard Gary St. Marie
    
    Director
    
    June 16, 2008
 54




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Share-Based Payments
 Internal
Control-Integrated Framework
  
 55




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal
Control-Integrated Framework
    Internal Control-Integrated Framework
   
 56




---



##### Table of Contents



NAVARRE CORPORATION
CONSOLIDATED BALANCE SHEETS
 March 31,2008
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    4,445
    
    
    $
    966Marketable securities
    
    
    1,506
    
    
    
    Accounts receivable, less allowance for doubtful accounts and sales returns of $15,417
and $18,284, respectively
    
    
    76,806
    
    
    
    70,609Inventories
    
    
    32,654
    
    
    
    36,791Prepaid expenses and other current assets
    
    
    12,118
    
    
    
    11,126Income taxes receivable
    
    
    937
    
    
    
    828Deferred tax assets  current
    
    
    9,100
    
    
    
    8,935Current assets of discontinued operations
    
    
    
    
    
    
    21,889Total current assets
    
    
    137,566
    
    
    
    151,144Property and equipment, net of accumulated depreciation of $14,484 and $10,786, respectively
    
    
    17,181
    
    
    
    12,551Assets held for sale, net of accumulated depreciation of $194 and $131, respectively
    
    
    1,428
    
    
    
    1,491Other assets:Marketable securities
    
    
    2,667
    
    
    
    Goodwill
    
    
    81,697
    
    
    
    81,697Intangible assets, net of amortization of $21,180 and $15,588, respectively
    
    
    9,984
    
    
    
    14,197License fees, net of amortization of $19,595 and $12,688, respectively
    
    
    20,515
    
    
    
    15,609Other assets
    
    
    12,424
    
    
    
    11,193Long-term assets of discontinued operations
    
    
    
    
    
    
    343Total assets
    
    $
    283,462
    
    
    $
    288,225Liabilities and shareholders equityCurrent liabilities:Note payable  line of credit
    
    $
    31,314
    
    
    $
    38,956Note payable  short term
    
    
    150
    
    
    
    150Capital lease obligation  short term
    
    
    59
    
    
    
    102Accounts payable
    
    
    92,199
    
    
    
    87,145Deferred compensation
    
    
    2,080
    
    
    
    Accrued expenses
    
    
    16,118
    
    
    
    13,578Current liabilities of discontinued operations
    
    
    
    
    
    
    12,748Total current liabilities
    
    
    141,920
    
    
    
    152,679Long  term liabilitiesNote payable  long-term
    
    
    9,594
    
    
    
    14,850Capital lease obligation  long-term
    
    
    60
    
    
    
    120Deferred compensation
    
    
    3,491
    
    
    
    6,358Deferred tax liabilities  non-current
    
    
    3,106
    
    
    
    7Other long  term liabilities
    
    
    880
    
    
    
    760Total liabilities
    
    
    159,051
    
    
    
    174,774Commitments and contingencies (Note 24)Shareholders equity:Common stock, no par value:Authorized shares - 100,000,000Issued and outstanding shares - 36,227,886 and 36,038,295, respectively
    
    
    160,103
    
    
    
    158,801Accumulated deficit
    
    
    (35,692
    )
    
    
    (45,350
    )Total shareholders equity
    
    
    124,411
    
    
    
    113,451Total liabilities and shareholders equity
    
    $
    283,462
    
    
    $
    288,225
 See accompanying notes to consolidated financial statements.
 57




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##### Table of Contents



NAVARRE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
 Fiscal Years ended March 31,2008
    
    
    2007
    
    
    2006Net sales
    
    $
    658,472
    
    
    $
    644,790
    
    
    $
    615,557Cost of sales (exclusive of depreciation and amortization)
    
    
    556,913
    
    
    
    537,433
    
    
    
    514,132Gross profit
    
    
    101,559
    
    
    
    107,357
    
    
    
    101,425Operating expenses:Selling and marketing
    
    
    27,370
    
    
    
    28,299
    
    
    
    27,950Distribution and warehousing
    
    
    11,976
    
    
    
    12,330
    
    
    
    9,567General and administrative
    
    
    34,810
    
    
    
    35,754
    
    
    
    35,771Bad debt expense (recovery)
    
    
    (15
    )
    
    
    3,654
    
    
    
    12,111Depreciation and amortization
    
    
    9,587
    
    
    
    10,958
    
    
    
    9,259Total operating expenses
    
    
    83,728
    
    
    
    90,995
    
    
    
    94,658Income from operations
    
    
    17,831
    
    
    
    16,362
    
    
    
    6,767Other income (expense):Interest expense
    
    
    (6,127
    )
    
    
    (10,220
    )
    
    
    (11,217
    )Interest income
    
    
    259
    
    
    
    357
    
    
    
    583Deconsolidation of variable interest entity
    
    
    
    
    
    
    
    
    
    
    1,896Warrant expense
    
    
    
    
    
    
    (251
    )
    
    
    (342
    )Derivative gain
    
    
    
    
    
    
    
    
    
    
    623Other income (expense), net
    
    
    366
    
    
    
    (50
    )
    
    
    4Income (loss) from continuing operations before income tax
    
    
    12,329
    
    
    
    6,198
    
    
    
    (1,686
    )Income tax benefit (expense)
    
    
    (5,273
    )
    
    
    (2,594
    )
    
    
    654Net income (loss) from continuing operations
    
    
    7,056
    
    
    
    3,604
    
    
    
    (1,032
    )Discontinued operations, net of taxGain on sale of discontinued operations
    
    
    4,892
    
    
    
    
    
    
    
    Income (loss) from discontinued operations
    
    
    (2,290
    )
    
    
    455
    
    
    
    (2,143
    )Net income (loss)
    
    $
    9,658
    
    
    $
    4,059
    
    
    $
    (3,175
    )Basic earnings (loss) per common share:Continuing operations
    
    $
    .20
    
    
    $
    .10
    
    
    $
    (.04
    )Discontinued operations
    
    $
    .07
    
    
    $
    .01
    
    
    $
    (.07
    )Net income (loss)
    
    $
    .27
    
    
    $
    .11
    
    
    $
    (.11
    )Diluted earnings (loss) per common share:Continuing operations
    
    $
    .20
    
    
    $
    .10
    
    
    $
    (.04
    )Discontinued operations
    
    $
    .07
    
    
    $
    .01
    
    
    $
    (.07
    )Net income (loss)
    
    $
    .27
    
    
    $
    .11
    
    
    $
    (.11
    )Weighted average shares outstanding:Basic
    
    
    36,105
    
    
    
    35,786
    
    
    
    29,898Diluted
    
    
    36,269
    
    
    
    36,228
    
    
    
    29,898
 See accompanying notes to consolidated financial statements.
 58




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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, 2005
    
    
    27,896,080
    
    
    $
    123,481
    
    
    $
    (46,197
    )
    
    $
    
    
    
    $
    77,284
    
    
    
    
    
    
    $
    Shares issued upon exercise of
stock options
    
    
    187,531
    
    
    
    455
    
    
    
    
    
    
    
    
    
    
    
    455
    
    
    
    
    
    
    
    Shares issued with acquisition of
FUNimation
    
    
    1,827,486
    
    
    
    14,144
    
    
    
    
    
    
    
    
    
    
    
    14,144
    
    
    
    
    
    
    
    Shares issued with private
placement, net of expenses $1,421
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,699,998
    
    
    
    16,634Tax benefit from employee stock
option plans
    
    
    
    
    
    
    249
    
    
    
    
    
    
    
    
    
    
    
    249
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    (37
    )
    
    
    (37
    )
    
    
    
    
    
    
    (74
    )
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    (3,175
    )
    
    
    
    
    
    
    (3,175
    )
    
    
    
    
    
    
    Unrealized gain on derivative
instrument, net of tax of $14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    23
    
    
    
    
    
    
    
    Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,152
    )
    
    
    
    
    
    
    Balance 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
    
    
    
    
    
    
    $
    
 See accompanying notes to consolidated financial statements.
 59




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##### Table of Contents



NAVARRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Fiscal Years ended March 31,2008
    
    
    2007
    
    
    2006Operating activities:Net income (loss)
    
    $
    9,658
    
    
    $
    4,059
    
    
    $
    (3,175
    )Adjustments to reconcile net income (loss) to net cash (used in) provided by
operating activities:(Income) loss from discontinued operations
    
    
    2,290
    
    
    
    (455
    )
    
    
    2,143Gain on sale of discontinued operations
    
    
    (4,892
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    9,672
    
    
    
    10,954
    
    
    
    9,270Amortization of deferred financing costs
    
    
    333
    
    
    
    551
    
    
    
    523Write-off of deferred financing costs
    
    
    
    
    
    
    2,426
    
    
    
    239Amortization of license fees
    
    
    6,907
    
    
    
    7,353
    
    
    
    5,334Amortization of production costs
    
    
    3,284
    
    
    
    2,278
    
    
    
    1,875Change in deferred revenue
    
    
    (311
    )
    
    
    (80
    )
    
    
    (954
    )Share-based compensation expense
    
    
    1,072
    
    
    
    910
    
    
    
    Deferred compensation expense
    
    
    (787
    )
    
    
    1,086
    
    
    
    288Write-off of notes receivable, related party
    
    
    
    
    
    
    200
    
    
    
    200Tax benefit from employee stock options
    
    
    67
    
    
    
    143
    
    
    
    249Deferred income taxes
    
    
    2,788
    
    
    
    (1,246
    )
    
    
    (2,463
    )Gain on deconsolidation of variable interest entity
    
    
    
    
    
    
    
    
    
    
    (1,896
    )Other
    
    
    (171
    )
    
    
    238
    
    
    
    379Changes in operating assets and liabilities, net of effects of acquisitions:Accounts receivable
    
    
    (6,197
    )
    
    
    (997
    )
    
    
    14,014Inventories
    
    
    4,137
    
    
    
    3,900
    
    
    
    (2,854
    )Prepaid expenses
    
    
    (992
    )
    
    
    (1,960
    )
    
    
    (4,204
    )Contingent liabilities
    
    
    (760
    )
    
    
    
    
    
    
    Income taxes receivable
    
    
    (109
    )
    
    
    3,580
    
    
    
    (4,408
    )Other assets
    
    
    634
    
    
    
    1,855
    
    
    
    143Production costs
    
    
    (5,183
    )
    
    
    (3,918
    )
    
    
    (3,044
    )License fees
    
    
    (11,813
    )
    
    
    (9,615
    )
    
    
    (11,263
    )Accounts payable
    
    
    5,054
    
    
    
    2,302
    
    
    
    (2,880
    )Income taxes payable
    
    
    880
    
    
    
    
    
    
    
    (8
    )Accrued expenses
    
    
    2,824
    
    
    
    (2,211
    )
    
    
    (2,881
    )Net cash provided by (used in) operating activities
    
    
    18,385
    
    
    
    21,353
    
    
    
    (5,373
    )Investing activities:Acquisitions, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (87,085
    )Purchases of property and equipment
    
    
    (8,562
    )
    
    
    (7,053
    )
    
    
    (2,899
    )Purchases of intangible assets
    
    
    (1,379
    )
    
    
    (1,534
    )
    
    
    (644
    )Purchases of marketable equity securities
    
    
    (4,000
    )
    
    
    
    
    
    
    Payment of earn-out related to an acquisition
    
    
    
    
    
    
    (350
    )
    
    
    (350
    )Other
    
    
    
    
    
    
    57
    
    
    
    (18
    )Net cash used in investing activities
    
    
    (13,941
    )
    
    
    (8,880
    )
    
    
    (90,996
    )Financing activities:Proceeds from note payable, line of credit
    
    
    198,379
    
    
    
    97,240
    
    
    
    Payments on note payable, line of credit
    
    
    (206,021
    )
    
    
    (58,284
    )
    
    
    Repayment of note payable
    
    
    (5,256
    )
    
    
    (80,130
    )
    
    
    (59,870
    )Proceeds of note payable
    
    
    
    
    
    
    15,000
    
    
    
    141,075Debt acquisition costs
    
    
    (240
    )
    
    
    (990
    )
    
    
    (3,071
    )Repayments of capital lease obligations
    
    
    (103
    )
    
    
    (115
    )
    
    
    (91
    )Other
    
    
    
    
    
    
    (131
    )
    
    
    Proceeds from sale of common stock and warrants
    
    
    
    
    
    
    
    
    
    
    18,528Proceeds from exercise of common stock options and warrants
    
    
    190
    
    
    
    466
    
    
    
    455Net cash provided by (used in) financing activities
    
    
    (13,051
    )
    
    
    (26,944
    )
    
    
    97,026Net increase (decrease) in cash from continuing operations
    
    
    (8,607
    )
    
    
    (14,471
    )
    
    
    657
 60




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Fiscal Years ended March 31,2008
    
    
    2007
    
    
    2006Discontinued operations:Net cash provided by (used in) operating activities
    
    
    5,586
    
    
    
    1,141
    
    
    
    (1,932
    )Net cash provided by investing activities, proceeds from sale of discontinued operations
    
    
    6,500
    
    
    
    
    
    
    
    Net increase (decrease) in cash
    
    
    3,479
    
    
    
    (13,330
    )
    
    
    (1,275
    )Cash at beginning of year
    
    
    966
    
    
    
    14,296
    
    
    
    15,571Cash at end of year
    
    $
    4,445
    
    
    $
    966
    
    
    $
    14,296Supplemental cash flow information:Cash paid for:Interest
    
    $
    5,460
    
    
    $
    8,834
    
    
    $
    9,328Income taxes, net of refunds
    
    
    1,086
    
    
    
    601
    
    
    
    4,421Supplemental schedule of noncash investing and financing activities:Reclassification of acquisition costs from other assets to goodwill
    
    $
    
    
    
    $
    
    
    
    $
    1,656Purchase price adjustments affecting accounts receivable and goodwill
    
    
    
    
    
    
    145
    
    
    
    Purchase price adjustments affecting accounts receivable and gain on sale, net
    
    
    245
    
    
    
    
    
    
    
    Capital lease obligations incurred for the purchase of computer equipment
    
    
    
    
    
    
    
    
    
    
    107Shares received for payment of tax withholding obligations
    
    
    27
    
    
    
    
    
    
    
    Reclassification of deposits from property and equipment to prepaid expenses
    
    
    
    
    
    
    164
    
    
    
    Reclassification of prepaid royalties to other assets
    
    
    
    
    
    
    
    
    
    
    5,363Reclassification of warrant accrual and temporary equity to common stock
    
    
    
    
    
    
    19,121
    
    
    
    Acquisition:Fair value of assets acquired
    
    $
    
    
    
    $
    
    
    
    $
    114,484Less: Assumed liabilities
    
    
    
    
    
    
    
    
    
    
    9,116Fair value of stock issued
    
    
    
    
    
    
    
    
    
    
    14,144Cash acquired
    
    
    
    
    
    
    
    
    
    
    4,139Acquisition net of cash acquired
    
    $
    
    
    
    $
    
    
    
    $
    87,085Deconsolidation of variable interest entity:Assets, including cash
    
    $
    
    
    
    $
    
    
    
    $
    642Less: Liabilities and shareholders equity
    
    
    
    
    
    
    
    
    
    
    2,501Net liabilities and shareholders equity
    
    $
    
    
    
    $
    
    
    
    $
    1,859
 See accompanying notes to consolidated financial statements.
 61




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##### Table of Contents



NAVARRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
 Note 1 Business Description
   anime
 Consolidation of Variable Interest Entities
 Note 2 Summary of Significant Accounting Policies
 Basis of Consolidation
  Segment Reporting
 Disclosure about Segments of an Enterprise and Related
Information
 62




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##### Table of Contents



Fiscal Year
  Use of Estimates
  Reclassifications
  Fair Value of Financial Instruments
  Cash and Cash Equivalents
  Marketable Securities
   Derivatives and Hedging
 Accounting for Derivative
Instruments and Hedging Activities
 63




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Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock,
 Research and Development  Mix & Burn
  Inventories
  Prepaid Royalties
 Financial Reporting in the Record and Music Industry
 Royalties Payable  FUNimation
 Accounting by Producers or Distributors of Films
 64




---



##### Table of Contents



Advertising
  Property and Equipment
  Asset
    
    Life in YearsBuildings
    
    
    25Furniture and fixtures
    
    
    7Office equipment
    
    
    5Computer equipment
    
    
    3Warehouse equipment
    
    
    5Leasehold improvements
    
    
    5-10Enterprise resource planning (ERP) system
    
    
    7
   Production Costs  FUNimation
 Accounting by Producers or Distributors of Films
  License Fees  FUNimation
 SOP 00-2
 Impairment of Long-Lived Assets
  65




---



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Goodwill
   Intangible Assets
  Debt Issuance Costs
  Operating Leases
  Revenue Recognition
   66




---



##### Table of Contents



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
   Foreign Currency Transactions
  67




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Income Taxes
  Stock-Based Compensation
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees Statement of Cash Flows
    68




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##### Table of Contents



Earnings Per Share
   Fiscal Years ended March 31,2008
    
    
    2007
    
    
    2006Numerator:Income (loss) from continuing operations
    
    $
    7,056
    
    
    $
    3,604
    
    
    $
    (1,032
    )Denominator:Denominator for basic earnings per share  weighted average shares
    
    
    36,105
    
    
    
    35,786
    
    
    
    29,898Dilutive securities: Employee stock options and warrants
    
    
    164
    
    
    
    442
    
    
    
    Denominator for diluted earnings per share  adjusted weighted average shares
    
    
    36,269
    
    
    
    36,228
    
    
    
    29,898Net earnings (loss) per share from continuing operations:Basic earnings (loss) per share
    
    $
    .20
    
    
    $
    .10
    
    
    $
    (.04
    )Diluted earnings (loss) per share
    
    $
    .20
    
    
    $
    .10
    
    
    $
    (.04
    )
   Recently Issued Accounting Pronouncements
  The Fair Value Option for
Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115
 69




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##### 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.
   The Hierarchy of Generally Accepted Accounting Principles
 70




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##### Table of Contents



The Meaning of Present
Fairly in Conformity with Generally Accepted Accounting Principles
 Accounting for Financial Guarantee Insurance Contracts Accounting and Reporting by Insurance Enterprises
 Note 3 Acquisition
  Purchase Price
 Business Combinations
   Accounts receivable
    
    $
    7,052Inventories
    
    
    315Prepaid expenses and other current assets
    
    
    53Property and equipment
    
    
    2,037License fees
    
    
    7,125Production costs
    
    
    2,608Goodwill
    
    
    71,165License arrangements and other intangibles
    
    
    21,646Current liabilities
    
    
    (9,116
    )Total purchase price, less cash acquired
    
    $
    102,885
  71




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##### Table of Contents



March 31, 2006As reported
    
    Pro formaNet sales
    
    $
    686,126
    
    
    $
    691,848Net loss from continuing operations
    
    
    (1,032
    )
    
    
    (1,172
    )Loss from continuing operations per common share:Basic
    
    $
    (.03
    )
    
    $
    (.04
    )Diluted
    
    $
    (.03
    )
    
    $
    (.04
    )
 Note 4 Discontinued Operations
     Fiscal Years ended March 31,2008
    
    
    2007
    
    
    2006Net sales
    
    $
    5,197
    
    
    $
    53,581
    
    
    $
    70,569Income (loss) from discontinued operations, before income tax
    
    
    (3,947
    )
    
    
    746
    
    
    
    (3,503
    )Income tax benefit (expense)
    
    
    1,657
    
    
    
    (291
    )
    
    
    1,360Income (loss) from discontinued operations, net of tax
    
    $
    (2,290
    )
    
    $
    455
    
    
    $
    (2,143
    )
   March 31,
    
    
    March 31,2008
    
    
    2007Accounts receivable
    
    $
    
    
    
    $
    15,175Inventory
    
    
    
    
    
    
    3,436Prepaid expenses and other current assets
    
    
    
    
    
    
    2,694Deferred tax assets  current
    
    
    
    
    
    
    584Current assets of discontinued operations
    
    
    
    
    
    
    21,889Intangible assets, net of amortization
    
    
    
    
    
    
    343Total assets of discontinued operations
    
    $
    
    
    
    $
    22,232Accounts payable
    
    $
    
    
    
    $
    12,075Accrued expenses
    
    
    
    
    
    
    673Current liabilities of discontinued operations
    
    $
    
    
    
    $
    12,748
 72




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##### Table of Contents



Note 5 Comprehensive Income (Loss)
   Years EndedMarch 31,2008
    
    
    2007Net income
    
    $
    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
    
    
    
    
    
    
    4Comprehensive income
    
    $
    9,658
    
    
    $
    4,036
   Note 6 Marketable Securities
    As of March 31, 2008Gross
    
    
    GrossEstimated fair
    
    
    unrealized
    
    
    unrealizedvalue
    
    
    holding gains
    
    
    holding lossesAvailable-for-sale:Government agency bonds
    
    
    410
    
    
    $
    
    
    
    $
    Money market fund
    
    
    3,763
    
    
    
    
    
    
    
    $
    4,173
    
    
    $
    
    
    
    $
    
   73




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##### Table of Contents



Note 7 Accounts Receivable
  March 31, 2008
    
    
    March 31, 2007Trade receivables
    
    $
    87,801
    
    
    $
    87,071Vendor receivables
    
    
    2,575
    
    
    
    448Other receivables
    
    
    1,847
    
    
    
    1,374$
    92,223
    
    
    $
    88,893Less: allowance for doubtful accounts and sales discounts
    
    
    6,067
    
    
    
    6,301Less: allowance for sales returns, net margin impact
    
    
    9,350
    
    
    
    11,983Total
    
    $
    76,806
    
    
    $
    70,609
 Note 8 Prepaid Expenses and Other Assets
  March 31, 2008
    
    
    March 31, 2007Prepaid royalties
    
    $
    11,297
    
    
    $
    9,621Other
    
    
    821
    
    
    
    1,505Total
    
    $
    12,118
    
    
    $
    11,126
 Note 9 Variable Interest Entity
 Consolidation of Variable Interest Entities Consolidated Financial Statements
  Investment
  74




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##### Table of Contents



Note 10 Inventories
  March 31, 2008
    
    
    March 31, 2007Finished products
    
    $
    23,545
    
    
    $
    27,313Consigned inventory
    
    
    2,569
    
    
    
    3,790Raw materials
    
    
    6,540
    
    
    
    5,688$
    32,654
    
    
    $
    36,791
  Note 11 Goodwill and Intangible Assets
 Goodwill
  Intangible assets
  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
    
    
    
    52Trademark (not amortized)
    
    
    1,568
    
    
    
    
    
    
    
    1,568$
    31,164
    
    
    $
    21,180
    
    
    $
    9,984
 As of March 31, 2007Gross carrying
    
    
    Accumulatedamount
    
    
    amortization
    
    
    NetMasters
    
    $
    8,069
    
    
    $
    4,542
    
    
    $
    3,527License relationships
    
    
    20,078
    
    
    
    11,038
    
    
    
    9,040Domain name
    
    
    70
    
    
    
    8
    
    
    
    62Trademark (not amortized)
    
    
    1,568
    
    
    
    
    
    
    
    1,568$
    29,785
    
    
    $
    15,588
    
    
    $
    14,197
   2009
    
    $
    4,7622010
    
    
    2,5002011
    
    
    6142012
    
    
    2372013
    
    
    301
 75




---



##### Table of Contents



Debt issuance costs
  Note 12 Production Costs
  March 31,
    
    
    March 31,2008
    
    
    2007Production costs
    
    $
    14,755
    
    
    $
    9,572Less: accumulated amortization
    
    
    7,439
    
    
    
    4,155$
    7,316
    
    
    $
    5,417
  Note 13 Property and Equipment
  March 31,
    
    
    March 31,2008
    
    
    2007Furniture and fixtures
    
    $
    1,332
    
    
    $
    1,111Computer and office equipment
    
    
    14,944
    
    
    
    6,425Warehouse equipment
    
    
    9,564
    
    
    
    9,103Production equipment
    
    
    917
    
    
    
    520Leasehold improvements
    
    
    2,060
    
    
    
    1,913Construction in progress
    
    
    2,848
    
    
    
    4,133Total
    
    $
    31,665
    
    
    $
    23,205Less: accumulated depreciation and amortization
    
    
    14,484
    
    
    
    10,654Net property and equipment
    
    $
    17,181
    
    
    $
    12,551
 Note 14 Assets Held for Sale
 Accounting for the Impairment or Disposal of Long-Lived
Assets,
 76




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##### Table of Contents



Note 15 License Fees
  March 31,
    
    
    March 31,2008
    
    
    2007License fees
    
    $
    40,110
    
    
    $
    28,297Less: accumulated amortization
    
    
    19,595
    
    
    
    12,688$
    20,515
    
    
    $
    15,609
  Note 16 Accrued Expenses
  March 31,
    
    
    March 31,2008
    
    
    2007Compensation and benefits
    
    $
    3,818
    
    
    $
    5,009Royalties
    
    
    7,830
    
    
    
    4,172Rebates
    
    
    1,955
    
    
    
    2,091Interest
    
    
    495
    
    
    
    160Other
    
    
    2,020
    
    
    
    2,146Total
    
    $
    16,118
    
    
    $
    13,578
 Note 17 Bank Financing and Debt
     77




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##### Table of Contents



March 31,
    
    
    March 31,2008
    
    
    2007Note payable
    
    $
    9,744
    
    
    $
    15,000Less: current portion
    
    
    150
    
    
    
    150Total long  term debt
    
    $
    9,594
    
    
    $
    14,850
  2009
    
    $
    1502010
    
    
    1502011
    
    
    9,444Total
    
    $
    9,744
 Letters of Credit
  Note 18 Derivative Instruments
   78




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##### Table of Contents



Note 19 Income Taxes
  Fiscal Years ended March 31,2008
    
    
    2007
    
    
    2006CurrentFederal
    
    $
    1,610
    
    
    $
    3,480
    
    
    $
    1,579Foreign
    
    
    300
    
    
    
    
    
    
    
    State
    
    
    429
    
    
    
    664
    
    
    
    117Deferred
    
    
    2,934
    
    
    
    (1,550
    )
    
    
    (2,350
    )Tax expense (benefit)
    
    $
    5,273
    
    
    $
    2,594
    
    
    $
    (654
    )
  Fiscal Years ended March 31,2008
    
    
    2007
    
    
    2006Expected federal income tax at statutory rate
    
    $
    4,315
    
    
    $
    2,107
    
    
    $
    (573
    )State income taxes, net of federal tax effect
    
    
    523
    
    
    
    419
    
    
    
    (74
    )Write-off of note to variable interest entity
    
    
    
    
    
    
    
    
    
    
    (850
    )Valuation allowance
    
    
    
    
    
    
    
    
    
    
    875Warrant expense
    
    
    
    
    
    
    85
    
    
    
    116Equity compensation
    
    
    222
    
    
    
    100
    
    
    
    Uncertain tax liability
    
    
    97
    
    
    
    
    
    
    
    Other
    
    
    116
    
    
    
    (117
    )
    
    
    (148
    )Tax expense (benefit)
    
    $
    5,273
    
    
    $
    2,594
    
    
    $
    (654
    )
 Fiscal Years ended March 31,2008
    
    2007
    
    2006Expected federal income tax at statutory rate
    
    
    35.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State income taxes, net of federal tax effect
    
    
    4.2
    
    
    
    6.8
    
    
    
    4.4Write-off of note to variable interest entity
    
    
    
    
    
    
    
    
    
    
    50.4Valuation allowance
    
    
    
    
    
    
    
    
    
    
    (51.9
    )Warrant expense
    
    
    
    
    
    
    1.4
    
    
    
    (6.9
    )Equity compensation
    
    
    1.8
    
    
    
    1.6
    
    
    
    Other
    
    
    1.8
    
    
    
    (1.9
    )
    
    
    8.842.8
    %
    
    
    41.9
    %
    
    
    38.8
    %
 79




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##### Table of Contents



Fiscal Years ended March 31,2008
    
    
    2007Net deferred tax asset (liability)  currentCollectibility reserves
    
    $
    6,886
    
    
    $
    8,042Allowance for sales returns
    
    
    565
    
    
    
    468Reserve for sales discounts
    
    
    154
    
    
    
    265Accrued vacations
    
    
    381
    
    
    
    364Inventory  uniform capitalization
    
    
    154
    
    
    
    257Incentive based deferred compensation
    
    
    798
    
    
    
    59Other
    
    
    162
    
    
    
    220Subtotal deferred tax asset  current
    
    
    9,100
    
    
    
    9,675Valuation allowance
    
    
    
    
    
    
    (740
    )Total deferred tax asset  current
    
    
    9,100
    
    
    
    8,935Net deferred tax asset (liability)  non-currentIncentive based deferred compensation
    
    
    1,324
    
    
    
    2,420Stock based compensation
    
    
    262
    
    
    
    147Book/tax intangibles amortization
    
    
    (3,915
    )
    
    
    (3,107
    )Book/tax depreciation
    
    
    (791
    )
    
    
    (225
    )Capital loss carryforwards
    
    
    
    
    
    
    1,000Other
    
    
    14
    
    
    
    18Subtotal deferred tax asset (liability)  non-current
    
    
    (3,106
    )
    
    
    253Valuation allowance
    
    
    
    
    
    
    (260
    )Total deferred tax (liability)  non-current
    
    
    (3,106
    )
    
    
    (7
    )Total deferred tax asset
    
    $
    5,994
    
    
    $
    8,928
   Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109
  80




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##### Table of Contents



Balance at April 1, 2007
    
    $
    417Gross increases related to prior year tax positions
    
    
    197Gross increases related to current year tax positions
    
    
    266Balance at March 31, 2008
    
    $
    880
  Share-Based Payment
    Note 20 Shareholders Equity
   Note 21 Private Placement
  81




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Note 22 Share-Based Compensation
  Statement of Cash Flows Accounting for Stock-Based Compensation
 Accounting for Stock-Based Compensation  Transitional
Disclosure
  Transition Election
Related to Accounting for Tax Effects of Share-Based Payment Awards
 Equity Compensation Plans
    82




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##### Table of Contents



Stock Options
  Fiscal year ended
    
    
    Fiscal year ended
    
    
    Fiscal year endedMarch 31, 2008
    
    
    March 31, 2007
    
    
    March 31, 2006Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    average
    
    
    
    
    
    
    averageNumber of
    
    
    exercise
    
    
    Number of
    
    
    exercise
    
    
    Number of
    
    
    exerciseoptions
    
    
    price
    
    
    options
    
    
    price
    
    
    options
    
    
    priceOptions outstanding, beginning of period:
    
    
    3,601,700
    
    
    $
    6.92
    
    
    
    3,341,100
    
    
    $
    7.17
    
    
    
    2,787,800
    
    
    $
    7.24Granted
    
    
    429,000
    
    
    
    2.68
    
    
    
    842,000
    
    
    
    4.79
    
    
    
    1,195,000
    
    
    
    6.64Exercised
    
    
    (237,448
    )
    
    
    1.48
    
    
    
    (301,200
    )
    
    
    1.55
    
    
    
    (277,500
    )
    
    
    3.76Canceled
    
    
    (660,753
    )
    
    
    6.77
    
    
    
    (280,200
    )
    
    
    9.32
    
    
    
    (364,200
    )
    
    
    8.50Options outstanding, end of period
    
    
    3,132,499
    
    
    
    6.78
    
    
    
    3,601,700
    
    
    
    6.92
    
    
    
    3,341,100
    
    
    
    7.17Options exercisable, end of period
    
    
    2,296,565
    
    
    $
    7.89
    
    
    
    2,634,933
    
    
    $
    7.86
    
    
    
    2,937,300
    
    
    $
    7.93Shares available for future grant, end
of period
    
    
    1,827,501
    
    
    
    
    
    
    
    461,000
    
    
    
    
    
    
    
    1,441,054
   83




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##### Table of Contents



Restricted Stock
   Fiscal year ended
    
    
    Fiscal year endedMarch 31, 2008
    
    
    March 31, 2007Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    averagegrant date
    
    
    
    
    
    
    grant dateShares
    
    
    fair value
    
    
    Shares
    
    
    fair valueUnvested, beginning of period:
    
    
    120,000
    
    
    $
    4.68
    
    
    
    
    
    
    $
    Granted
    
    
    131,000
    
    
    
    2.41
    
    
    
    151,000
    
    
    
    4.60Vested
    
    
    (73,333
    )
    
    
    4.41
    
    
    
    (6,000
    )
    
    
    4.29Forfeited
    
    
    (5,750
    )
    
    
    2.41
    
    
    
    (25,000
    )
    
    
    4.29Unvested, end of period
    
    
    171,917
    
    
    $
    3.02
    
    
    
    120,000
    
    
    $
    4.68
     Restricted Stock Units
   84




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##### Table of Contents



Valuation and Expense Information Under SFAS 123R
  Fiscal Year
    
    Fiscal YearEnded
    
    EndedMarch 31,
    
    March 31,2008
    
    2007Expected life (in years)
    
    
    5.0
    
    
    
    5.0Expected volatility
    
    
    67
    %
    
    
    69
    %Risk-free interest rate
    
    
    2.53-5.02
    %
    
    
    4.45-5.19
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
   Pro Forma Information Under SFAS 123 for Periods Prior to Fiscal 2007
   Fiscal yearendedMarch 31,2006Loss from continuing operations, as reported
    
    $
    (1,032
    )Deduct: Share-based compensation expense determined under
fair value based method for all awards, net of related taxes
    
    
    (7,848
    )Pro forma loss from continuing operations
    
    $
    (8,880
    )Basic loss from continuing operations per share:As reported
    
    $
    (.04
    )Pro forma
    
    $
    (.30
    )Diluted loss from continuing operations per share:As reported
    
    $
    (.04
    )Pro forma
    
    $
    (.30
    )
 85




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##### Table of Contents



Fiscal yearendedMarch 31,2006Expected life (in years)
    
    
    5.0Expected volatility
    
    
    67
    %Risk-free interest rate
    
    
    3.9-4.7
    %Expected dividend yield
    
    
    0.0
    %
 Note 23 401(k) Plan
  Note 24 Commitments and Contingencies
 Leases
   2009
    
    $
    2,7062010
    
    
    2,8362011
    
    
    2,5182012
    
    
    2,5342013
    
    
    2,568Thereafter
    
    
    13,789$
    26,951
 Litigation and Proceedings
  86




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##### Table of Contents



SEC Investigation
  Sybersound Records, Inc. v. BCI Eclipse, LLC, et al.
      Securities Litigation Lawsuits
    87




---



##### Table of Contents



Note 25 Capital Leases
  March 31, 2008
    
    
    March 31, 2007Computer and office equipment
    
    $
    487
    
    
    $
    487Less: accumulated depreciation and amortization
    
    
    392
    
    
    
    296Net property and equipment
    
    $
    95
    
    
    $
    191
  Minimum LeaseCommitmentsYear ending March 31:2009
    
    $
    772010
    
    
    592011
    
    
    82012
    
    
    Total minimum lease payments
    
    $
    144Less: amounts representing interest at rates ranging from 9.6% to 31.6%
    
    
    25Present value of minimum capital lease payments
    
    $
    119Less: current installments
    
    
    59Obligations under capital lease, less current installments
    
    $
    60
 Note 26 License and Distribution Agreement
  Note 27 Related Party Transactions
 Employment/Severance Agreements
   88




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##### Table of Contents



Employment Agreement  FUNimation
  Note 28 Major Customers
  Note 29 Business Segments
      89




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##### Table of Contents



Distribution
    
    Publishing
    
    Other
    
    Eliminations
    
    ConsolidatedFiscal Year 2008Net sales
    
    $
    611,007
    
    
    $
    117,423
    
    
    $
    
    
    
    $
    (69,958
    )
    
    $
    658,472Income from continuing operations
    
    
    5,138
    
    
    
    12,693
    
    
    
    
    
    
    
    
    
    
    
    17,831Income from continuing operations before income taxes
    
    
    3,880
    
    
    
    8,449
    
    
    
    
    
    
    
    
    
    
    
    12,329Depreciation and amortization expense
    
    
    3,280
    
    
    
    6,307
    
    
    
    
    
    
    
    
    
    
    
    9,587Capital expenditures
    
    
    7,462
    
    
    
    1,100
    
    
    
    
    
    
    
    
    
    
    
    8,562Total assets
    
    
    221,912
    
    
    
    176,907
    
    
    
    
    
    
    
    (115,357
    )
    
    
    283,462
 Distribution
    
    Publishing
    
    Other
    
    Eliminations
    
    ConsolidatedFiscal Year 2007Net sales
    
    $
    587,881
    
    
    $
    126,651
    
    
    $
    
    
    
    $
    (69,742
    )
    
    $
    644,790Income from continuing operations
    
    
    6,273
    
    
    
    10,089
    
    
    
    
    
    
    
    
    
    
    
    16,362Income (loss) from continuing
operations before income taxes
    
    
    (4,319
    )
    
    
    10,517
    
    
    
    
    
    
    
    
    
    
    
    6,198Depreciation and amortization expense
    
    
    2,616
    
    
    
    8,342
    
    
    
    
    
    
    
    
    
    
    
    10,958Capital expenditures
    
    
    6,555
    
    
    
    498
    
    
    
    
    
    
    
    
    
    
    
    7,053Total assets
    
    
    235,623
    
    
    
    155,742
    
    
    
    
    
    
    
    (103,140
    )
    
    
    288,225
 Distribution
    
    Publishing
    
    Other
    
    Eliminations
    
    ConsolidatedFiscal Year 2006Net sales
    
    $
    551,170
    
    
    $
    127,612
    
    
    $
    424
    
    
    $
    (63,649
    )
    
    $
    615,557Income (loss) from continuing operations
    
    
    (4,505
    )
    
    
    12,862
    
    
    
    (1,590
    )
    
    
    
    
    
    
    6,767Income (loss) from continuing
operations before income taxes
    
    
    (14,577
    )
    
    
    12,754
    
    
    
    137
    
    
    
    
    
    
    
    (1,686
    )Depreciation and amortization expense
    
    
    2,242
    
    
    
    7,017
    
    
    
    
    
    
    
    
    
    
    
    9,259Capital expenditures
    
    
    2,477
    
    
    
    303
    
    
    
    119
    
    
    
    
    
    
    
    2,899Total assets
    
    
    269,774
    
    
    
    160,834
    
    
    
    
    
    
    
    (120,994
    )
    
    
    309,614
 Note
30 Subsequent Event
   90




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##### Table of Contents



Note 31 Quarterly Data  Seasonality (Unaudited)
   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
    
    
    
    23,881Net 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
    
    
    $
    0.02
 Quarter EndedJune 30
    
    
    September 30
    
    
    December 31
    
    
    March 31Fiscal Year 2007Net sales
    
    $
    132,171
    
    
    $
    158,893
    
    
    $
    195,424
    
    
    $
    158,302Gross profit
    
    
    22,790
    
    
    
    28,266
    
    
    
    32,707
    
    
    
    23,594Net income (loss) from continuing operations
    
    
    476
    
    
    
    1,516
    
    
    
    3,800
    
    
    
    (2,188
    )Discontinued operations, net of taxGain on sale of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) from discontinued operations
    
    
    158
    
    
    
    96
    
    
    
    251
    
    
    
    (50
    )Net income (loss)
    
    $
    634
    
    
    $
    1,612
    
    
    $
    4,051
    
    
    $
    (2,238
    )Basic earnings (loss) per common share:Continuing operations
    
    $
    0.01
    
    
    $
    0.05
    
    
    $
    0.10
    
    
    $
    (0.06
    )Discontinued operations
    
    $
    0.01
    
    
    $
    
    
    
    $
    0.01
    
    
    $
    Net income (loss)
    
    $
    0.02
    
    
    $
    0.05
    
    
    $
    0.11
    
    
    $
    (0.06
    )Diluted earnings (loss) per common share:Continuing operations
    
    $
    0.01
    
    
    $
    0.04
    
    
    $
    0.10
    
    
    $
    (0.06
    )Discontinued operations
    
    $
    0.01
    
    
    $
    
    
    
    $
    0.01
    
    
    $
    Net income (loss)
    
    $
    0.02
    
    
    $
    0.04
    
    
    $
    0.11
    
    
    $
    (0.06
    )
 91




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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, 2008:Deducted from asset accounts:Allowance for vendor receivables
    
    $
    
    
    
    $
    47
    
    
    $
    (47
    )
    
    $
    Allowance for doubtful accounts
    
    
    1,036
    
    
    
    (15
    )
    
    
    311
    
    
    
    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 vendor receivables
    
    $
    
    
    
    $
    47
    
    
    $
    (47
    )
    
    $
    Allowance for doubtful accounts
    
    
    1,532
    
    
    
    3,714
    
    
    
    (4,210
    )
    
    
    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
    )
    
    $
    18,284Year ended March 31, 2006:Deducted from asset accounts:Allowance for doubtful accounts
    
    $
    865
    
    
    $
    12,404
    
    
    $
    (11,737
    )
    
    $
    1,532Allowance for sales returns (1)
    
    
    3,152
    
    
    
    10,225
    
    
    
    (1,214
    )
    
    
    12,163Allowance for MDF and sales discounts
    
    
    2,158
    
    
    
    24,537
    
    
    
    (21,959
    )
    
    
    4,736Total
    
    $
    6,175
    
    
    $
    47,166
    
    
    $
    (34,910
    )
    
    $
    18,431
 
 (1)
    
    Additional reserves associated with the acquisition of FUNimation. 92