8-K/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 11, 2005

NAVARRE CORPORATION

(Exact name of Registrant as specified in its charter)

Minnesota	000-22982	41-1704319
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

7400 49th Avenue North, New Hope, MN 55428
(Address of principal executive offices)

Registrant’s telephone number, including area code: (763) 535-8333

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

Consent of BDO Seidman LLP

Audited Combined Financial Statements - Year Ended

Unaudited Combined Financial Statements - Three Months Ended

Unaudited Pro Forma Condensed Combined Balance Sheet

Item 2.01. Completion of Acquisition or Disposition of Assets.

On May 17, 2005, Navarre Corporation filed a Current Report on Form 8-K reporting, among other things, that on May 11, 2005 it completed the acquisition of all of the partnership interests of FUNimation Productions, Ltd and The FUNimations Store, Ltd. (collectively “FUNimations”). As part of the 8-K, we indicated that the financial statements and pro forma financials required under Item 9.01 would be filed no later than 71 days following the date that the Form 8-K was required to be filed. This Amendment No. 1 to the Current Report on Form 8-K contains the required financial statements and pro forma financial information.

The description of the acquisition of FUNimation contained in this Item 2.01 is qualified in its entirety by reference to the full text of the Partnership Interest Purchase Agreement and Amendment No. 1 thereto dated as of January 10, 2005 and May 11, 2005, respectively, which were filed as exhibits to the Form 8-K’s filed with the SEC on January 11, 2005 and May 17, 2005, respectively.

Item 3.02. Unregistered Sales of Equity Securities.

The correct number of options to purchase shares of Navarre Corporation common stock issued to Mr. Fukunaga in connection with his post-acquisition employment with FUNimation was 250,000, not 150,000. This correct figure was listed in the Form 3 filed by Mr. Fukunaga on May 20, 2005.

Item 9.01. Financial Statements and Exhibits.

(a)	Financial Statements of Business Acquired
	Audited combined financial statements for FUNimation Productions, Ltd. and The FUNimation Store, Ltd. as of and for the years ended December 31, 2004, 2003 and 2002, including the notes thereto.
	Unaudited combined financial statements for FUNimation Productions, Ltd. and The FUNimation Store, Ltd. as of March 31, 2005 and for the three months ended March 31, 2005 and 2004, including the notes thereto.
(b)	Pro Forma Financial Information
	Unaudited pro forma condensed combined balance sheet of Navarre Corporation as of March 31, 2005.
	Unaudited pro forma condensed combined statement of operations of Navarre Corporation for the year ended March 31, 2005.
(c)	Exhibits

10.1	*	Amendment No. 1 to Partnership Interest Purchase Agreement dated May 11, 2005.
10.2	*	Second Amended and Restated Credit Agreement dated May 11, 2005 between the Company and General Electric Capital Corporation.

23.1	Consent of BDO Seidman LLP
99.1*	Press Release issued by Navarre Corporation issued May 11,2005.
99.2	Audited combined financial statements for FUNimation Productions, Ltd. and The FUNimation Store, Ltd. as of and for the years ended December 31, 2004, 2003 and 2002, including the notes thereto.
99.3	Unaudited combined financial statements for FUNimation Productions, Ltd. and The FUNimation Store, Ltd. as of March 31, 2005 and for the three months ended March 31, 2005 and 2004, including the notes thereto.
99.4	Unaudited pro forma condensed combined balance sheet of Navarre Corporation as of March 31, 2005. Unaudited pro forma condensed combined statement of operations of Navarre Corporation for the year ended March 31, 2005.
*	Previously filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	NAVARRE CORPORATION
Dated: July 25, 2005	By:	/s/ DIANE D. LAPP
		Name:	Diane D. Lapp
		Title:	Interim Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description
10.1 *	Amendment No. 1 to Partnership Interest Purchase Agreement dated May 11, 2005.
10.2 *	Second Amended and Restated Credit Agreement dated May 11, 2005 between the Company and General Electric Capital Corporation.
23.1	Consent of BDO Seidman LLP
99.1 *	Press Release issued by Navarre Corporation issued May 11, 2005
99.2	Audited combined financial statements for FUNimation Productions, Ltd. and The FUNimation Store, Ltd. as of and for the years ended December 31, 2004, 2003 and 2002, including the notes thereto.
99.3	Unaudited combined financial statements for FUNimation Productions, Ltd. and The FUNimation Store, Ltd. as of March 31, 2005 and for the three months ended March 31, 2005 and 2004, including the notes thereto.
99.4	Unaudited pro forma condensed combined balance sheet of Navarre Corporation as of March 31, 2005. Unaudited pro forma condensed combined statement of operations of Navarre Corporation for the year ended March 31, 2005.

* Previously filed.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     We have issued our report dated March 5, 2005 relating to the combined financial statements of FUNimation Productions, Ltd. and the FUNimation Store, Ltd. for the years ended December 31, 2004, 2003 and 2002. Our report is included in this Form 8-K/A. We hereby consent to the Registration Statements of Navarre Corporation on Forms S-3 (File No. 333-111733 and File No. 333-119348) and on Forms S-8 (File No. 33-80218; File No. 33-86762; File No. 333-31017; File No. 333-87143; File No. 333-91710 and File No. 333-109056).

/s/ BDO Siedman, LLP

Dallas, Texas
July 25, 2005

EX-99.2

Exhibit 99.2

Independent Auditors’ Report

To the Partners of
FUNimation Productions, Ltd. and

     The FUNimation Store, Ltd.

Fort Worth, Texas

     We have audited the accompanying combined balance sheets of FUNimation Productions, Ltd. and The FUNimation Store, Ltd. (the “Company”) as of December 31, 2004, 2003 and 2002 and the related combined statements of income, partners’ capital and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of FUNimation Productions, Ltd. and The FUNimation Store, Ltd. at December 31, 2004, 2003 and 2002 and the combined results of their operations and their cash flows for the years ended December 31, 2004, 2003 and 2002 in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO Seidman, LLP

Dallas, Texas
March 5, 2005

FUNimation Productions, Ltd. and
The FUNimation Store, Ltd.

Combined Balance Sheets

	December 31,
	2004		2003		2002
ASSETS
Cash and cash equivalents	$	4,731,362	$	4,238,155	$	12,355,136
Accounts and royalties receivable, net		28,446,450		13,163,499		4,171,774
Inventories		10,072,945		8,430,554		9,390,151
License fees, net		17,476,232		10,108,053		7,388,477
Production costs, net		3,222,598		4,066,197		3,941,860
Property and equipment, net		2,019,983		1,802,668		1,228,883
Other assets		111,073		173,894		119,813
	$	66,080,643	$	41,983,020	$	38,596,094
LIABILITIES AND PARTNERS’ CAPITAL
Accounts payable and accrued liabilities	$	1,837,122	$	1,458,965	$	1,488,108
Accrued market development funds		963,351		1,460,564		872,945
Royalties payable		10,499,341		9,187,368		9,360,822
Deferred revenue		452,229		865,272		6,867,693
Notes payable to related parties		4,000,000		4,000,000		4,000,000
Total liabilities		17,752,043		16,972,169		22,589,568
Commitments and contingencies (Note 9)
Partners’ capital		48,328,600		25,010,851		16,006,526
	$	66,080,643	$	41,983,020	$	38,596,094

See accompanying notes to combined financial statements.

FUNimation Productions, Ltd. and
The FUNimation Store, Ltd.

Combined Statements of Income

	Years Ended December 31,
	2004		2003		2002
Revenues:
Wholesale and retail sales	$	47,346,974	$	59,688,252	$	41,880,689
License and royalty revenue		21,909,306		20,210,716		18,033,166
Broadcast revenue		2,722,985		844,435		3,772,136
Other		413,683		886,200		15,496
		72,392,948		81,629,603		63,701,487
Costs and expenses:
Cost of wholesale and retail sales		15,951,217		23,841,637		14,802,202
Royalty expense		15,539,904		18,246,920		15,012,341
Selling, general and administrative		10,532,381		8,527,347		8,529,454
Depreciation and amortization		231,697		189,374		182,021
Interest expense — related parties		320,000		320,000		293,320
		42,575,199		51,125,278		38,819,338
Net income	$	29,817,749	$	30,504,325	$	24,882,149

See accompanying notes to combined financial statements.

FUNimation Productions, Ltd. and
The FUNimation Store, Ltd.

Combined Statements of Partners’ Capital

	General			Limited
	Partners			Partners			Total
Balance at January 1, 2002	$	41,244		$	4,083,133		$	4,124,377
Distributions to partners		(130,000	)		(12,870,000	)		(13,000,000	)
Net income		248,821			24,633,328			24,882,149
Balance at December 31, 2002		160,065			15,846,461			16,006,526
Distributions to partners		(215,000	)		(21,285,000	)		(21,500,000	)
Net income		305,043			30,199,282			30,504,325
Balance at December 31, 2003		250,108			24,760,743			25,010,851
Distributions to partners		(65,000	)		(6,435,000	)		(6,500,000	)
Net income		298,177			29,519,572			29,817,749
Balance at December 31, 2004	$	483,285		$	47,845,315		$	48,328,600

See accompanying notes to combined financial statements.

FUNimation Productions, Ltd. and
The FUNimation Store, Ltd.

Combined Statements of Cash Flows

Increase (Decrease) in Cash and Cash Equivalents

	Years Ended December 31,
	2004			2003			2002
Cash Flows from Operating Activities:
Net income	$	29,817,749		$	30,504,325		$	24,882,149
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for returns and doubtful accounts		21,138,114			18,537,988			15,876,587
Amortization of license advances		2,872,016			5,872,668			1,204,534
Amortization of production costs		4,047,482			2,683,708			1,858,059
Depreciation of capital assets		231,697			189,375			182,021
Changes in deferred revenue		(413,043	)		(6,002,421	)		5,530,738
Changes in assets and liabilities:
Accounts receivable		(36,421,065	)		(27,529,713	)		(22,653,249	)
Inventory		(1,642,391	)		959,597			(5,231,415	)
Prepaid expenses and other assets		(37,179	)		(54,081	)		15,403
License advance expenditures		(10,240,195	)		(8,592,244	)		(6,873,080	)
Production cost expenditures		(3,203,883	)		(2,808,045	)		(1,850,092	)
Accounts payable		201,875			(117,516	)		288,893
Accrued expenses		176,282			88,373			35,377
Accrued market development funds		(497,213	)		587,619			780,937
Royalties payable		1,311,973			(173,454	)		4,575,798
Net cash provided by operating activities		7,342,219			14,146,179			18,622,660
Cash flows from investing activities:
Bond collected (paid)		100,000			—			(100,000	)
Capital expenditures		(449,012	)		(763,160	)		(1,148,604	)
Net cash used in investing activities		(349,012	)		(763,160	)		(1,248,604	)
Cash flows used in financing activities —
Distributions to partners		(6,500,000	)		(21,500,000	)		(13,000,000	)
Net increase (decrease) in cash and cash equivalents		493,207			(8,116,981	)		4,374,056
Cash and cash equivalents, beginning of year		4,238,155			12,355,136			7,981,080
Cash and cash equivalents, end of year	$	4,731,362		$	4,238,155		$	12,355,136
Supplemental disclosure of cash flow information:
Cash paid for interest	$	320,000		$	320,000		$	293,320

See accompanying notes to combined financial statements.

FUNimation Productions, Ltd. and
The FUNimation Store, Ltd.

Notes to Combined Financial Statements

Note 1 — Organization and Summary of Significant Accounting Policies

     Organization and Business — FUNimation Productions, Ltd. (“Productions”), a limited partnership, is a diversified entertainment company whose operations consist primarily of the acquisition and production of animated television films for distribution and licensing to domestic broadcast and cable television networks as well as wholesale sales of those films in VHS and DVD formats to customers throughout North America. In addition, Productions also engages in the acquisition of merchandising licenses.

     The FUNimation Store, Ltd. (the “Store”), a limited partnership, is a retail company that sells related program merchandise primarily through the internet. Sales by Store approximated $2,490,000, $3,257,000 and $4,218,000 during 2004, 2003 and 2002 respectively.

     Principles of Combination — The combined financial statements include the accounts of Productions and Store (“the Company”). Productions was formed in 1994 as an S-corporation. In 1999, Productions elected to become a limited partnership. The Store was formed at the beginning of 2000 as a limited partnership. Both Productions and the Store are owned by partners that have substantially the same ownership. All significant intercompany balances and transactions have been eliminated in combination.

     Partner Capital Accounts — The Companys’ partnership agreements each provide that the net cash flow (as defined) shall be distributed to the general and limited partners in accordance with their partnership percentage. Profits and losses (as defined) shall be allocated among the general and limited partners in the same proportions as net cash flow described above.

     Management’s Estimates and Assumptions — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company reviews all significant estimates affecting the financial statements on a recurring basis and records the effect of any necessary adjustments prior to their issuance.

     Fair Value of Financial Instruments — The carrying amount of the Company’s financial instruments, which principally include cash, trade receivables, accounts payable and accrued expenses, approximates fair value due to the relatively short maturity of such instruments. The fair value of the Company’s debt instruments approximates the amount of future cash flows associated with each instrument. The carrying value of debt instruments are not materially different from fair value, as the interest rate approximates rates currently available to the Company.

     Cash and Cash Equivalents — Investments in highly liquid securities with original maturities of three months or less are considered cash equivalents.

     Accounts and Royalties Receivable — Accounts receivable represent trade receivables from customers less allowances for doubtful accounts and returns. Such allowances are established by management based on historical experience and evaluation of specific accounts. The Company generally does not require collateral from customers. Receivables are charged against the allowance for doubtful accounts when management determines such accounts are uncollectible.

     Royalties receivable represent uncollected royalties earned on sale of licensed products, less allowances for doubtful accounts.

     A reserve for sales returns is established based on historical trends in product return rates. The reserve for sales returns as of December 31, 2004, 2003 and 2002 was $10,511,114, $17,322,424 and $20,247,958, respectively, for estimated future returns that were recorded as an offset to our revenues and accounts receivable. If the actual returns were to deviate from the historical data on which the reserve had been established, our revenues could be adversely affected.

     Revenue Recognition — All revenue is recognized upon meeting the recognition requirements of American Institute of Certified Public Accountants Statement of Position (“SOP”) 00-2, Accounting by Producers or Distributors of Films. Revenues from home video distribution are recognized, net of an allowance for estimated returns, in the period in which the product is available for sale by the Company’s customers (generally upon shipment to the customer and in the case of new releases, after “street date” restrictions lapse). Revenues from broadcast licensing and home video sublicensing are recognized when the programming is available to the licensee and other recognition requirements of SOP 00-2 are met. Fees received in advance of availability are deferred until revenue recognition requirements have been satisfied. Royalties on sales of licensed products are recognized in the period earned. In all instances, provisions for uncollectible amounts are provided at the time of sale.

     Inventories — Inventories consist primarily of finished products for sale and are carried at the lower of cost (first-in, first-out method) or market. Management periodically reviews inventory and provides reserves for excess, obsolete or damaged inventory based on changes in customer demand, technology and other economic factors.

     Participation Costs and License Fees — License Fees represent fixed minimum advance payments made to program suppliers for exclusive distribution rights. Distribution rights are granted under licensing agreements with initial terms that generally range from five to seven years. A program supplier’s share of distribution revenues (Participation Cost) is retained by the Company until the share equals the License Fees paid to the program supplier plus recoupable production costs. Thereafter, any excess is paid to the program supplier. License Fees are amortized as recouped by the Company. Participation costs are accrued in the same ratio that current period revenue for a title or group of titles bear to the estimated remaining unrecognized ultimate revenue for that title.

     Production Costs — Production costs represent unamortized costs of films and television programs, which have been produced by Productions or for which Productions has acquired distribution rights. Costs of produced films and television programs include all production costs, which are expected to be recovered from future revenues. Amortization of production costs is determined based on the ratio that current revenue earned from the films and television programs bear to the ultimate future revenue, as defined by SOP 00-2.

     When estimates of total revenues and costs indicate that an individual title will result in an ultimate loss, an impairment charge is recognized to the extent that license fees and production costs exceed estimated fair value, based on discounted cash flows, in the period when estimated.

     Property, Equipment and Depreciation — Property and equipment are stated at cost. Depreciation is computed over the estimated useful lives (3 to 20 years) of the assets using the straight-line method. The Company periodically reviews the carrying value of its long-lived assets for possible impairment. In management’s opinion, there is no impairment of such assets at December 31, 2004, 2003 and 2002.

     Royalties Payable — Royalties payable represents management’s estimate of accrued and unpaid ultimate participation costs as of the end of the fiscal year. Royalties are generally due and paid to the licensor one month after each quarterly period for sales of merchandise and license fees received.

     The Company expects to pay 100% of accrued royalties during the next twelve months ended December 31, 2005.

     Advertising — Advertising costs are expensed as incurred. Advertising expense amounted to approximately $2,376,000, $2,339,000 and $1,244,000 for the years ended December 31, 2004, 2003 and 2002, respectively.

     Market Development Funds — In accordance with Emerging Issues Task Force (“EITF”) 01-09, Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor’s Products, the Company has classified market development funds deducted from payment for purchases by customers as a reduction to revenues.

     Shipping Income and Expenses — In accordance with EITF 00-10, Accounting for Shipping and Handling Fees and Costs, the Company classifies amounts billed to customers for shipping fees as revenues, and classifies costs related to shipping as cost of sales.

     Income Taxes — The Company is not a taxpaying entity for federal income tax purposes; accordingly, a provision for income taxes has not been recorded in the accompanying financial statements. Partnership income and losses are reflected in the partners’ individual or corporate income tax returns in accordance with their ownership percentages.

     Impairment of Long-Lived and Intangible Assets — In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company evaluates the recoverability of the carrying amount of its long-lived assets and certain identifiable intangibles to be held and used by the Company. Such reviews are performed at least annually and whenever events or changes in circumstances indicate full recoverability is questionable.

     Assessment of recoverability includes a comparison of the asset’s carrying value to the sum of the undiscounted estimated future cash flows anticipated to be generated from the asset’s use and eventual disposition. If the Company determines that impairment has occurred, the measurement of the impairment will be equal to the excess of the asset’s carrying amount over its fair value. Factors used in ascertaining the estimated fair value include operating income before interest and television ratings, among others. Should the review determine impairment, the loss will be recognized through the statement of income, and the corresponding asset value will be reduced.

     Concentration of Credit Risk — Productions and the Store maintain cash and cash equivalents, including investments in money market securities, with various financial institutions. At December 31, 2004, 2003 and 2002, such amounts exceeded federally insured limits by approximately $5,203,238, $6,177,000, and $15,794,000, respectively. Management believes the risk of loss related to these balances is minimal.

     As of December 31, 2004, 2003 and 2002 four, two and two customers made up 80%, 81% and 80% of gross accounts receivable, respectively. During the years ended December 31, 2004, 2003 and 2002, four, three, and three customers made up 72%, 72% and 77% of gross wholesale and retail sales, respectively. During the year ended December 31, 2004, one licensor made up approximately 80% of license and royalty revenue. Revenue from this licensor included $10,000,000 related to a contract effective as of December 2004, and is included in accounts and royalties receivable at December 31, 2004.

     The Company operates under exclusive distribution rights granted by approximately 15 licensors. During the years ended December 31, 2004, 2003 and 2002 82%, 92% and 95% of revenue, respectively, was derived from sales of products under multiple licensing arrangements with two licensors. The inability to access future licenses through a loss of these licensor relationships could have a material negative effect on the operations of the Company.

     New Accounting Pronouncements — In November 2004, the FASB issued SFAS No. 151, “Inventory Costs,” which amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The adoption of this standard is not expected to have a material impact on the financial condition or net income of the Company.

     In December 2004, the FASB issued Statement No. 123 (revised 2004), Share-Based Payment. This standard eliminated the alternative of accounting for share-based compensation using APB Opinion No. 25. The revised standard generally requires the recognition of the cost of employee services based on the grant date fair value of equity or liability instruments issued. The effective date for the company is the beginning of the year ended December 31, 2006. The impact of the adoption on the company’s financial position or net income has not been determined.

Note 2 — Accounts and Royalties Receivables, net

     Accounts and royalties receivable, net consist of the following:

	December 31,
	2004			2003			2002
Accounts and royalties receivable	$	39,658,430		$	30,724,287		$	24,529,155
Allowance for doubtful accounts		(700,866	)		(238,364	)		(109,423	)
Allowance for sales returns		(10,511,114	)		(17,322,424	)		(20,247,958	)
	$	28,446,450		$	13,163,499		$	4,171,774

     A rollforward of the allowance for sales returns is as follows:

	December 31,
	2004		2003		2002
Beginning balance	$	17,322,424	$	20,247,958	$	17,677,520
Allowance accrual		20,699,135		18,409,047		15,767,164
Less: Actual returns		27,510,445		21,334,581		13,196,726
Ending balance	$	10,511,114	$	17,322,424	$	20,247,958

Note 3 — License Fees, net

     License fees, net consist of the following:

	December 31,
	2004			2003			2002
License fees	$	32,264,142		$	22,023,946		$	13,431,702
Accumulated amortization		(14,787,910	)		(11,915,893	)		(6,043,225	)
	$	17,476,232		$	10,108,053		$	7,388,477

     Amortization of license fees was $2,872,000, $5,873,000 and $1,204,000 for the years ended December 31, 2004, 2003 and 2002 respectively. These amounts have been included in royalty expense in the accompanying statements of income. License fees are amortized as recouped by the Company.

Note 4 — Production Costs, net

     Production costs, net consist of the following:

	2004			2003			2002
Production costs	$	13,516,527		$	10,312,644		$	7,504,599
Accumulated amortization		(10,293,929	)		(6,246,447	)		(3,562,739	)
	$	3,222,598		$	4,066,197		$	3,941,860

     The Company expects to amortize 100% of the December 31, 2004 unamortized production costs by December 31, 2007. The Company expects to amortize approximately $1,289,000 of production costs during the year ended December 31, 2005. Amortization of production costs was approximately $4,047,000, $2,684,000 and $1,858,000 for the years ended December 31, 2004, 2003 and 2002 respectively. These amounts have been included in cost of sales in the accompanying statements of income.

Note 5 — Property and Equipment, net

     Property and equipment, net consists of the following:

			December 31,
	Useful Life		2004			2003			2002
Land		—	$	217,560		$	200,136		$	200,136
Building	20 years			1,525,674			1,288,490			736,606
Fixtures and equipment	3-7 years			844,077			649,674			438,398
				2,587,311			2,138,300			1,375,140
Accumulated depreciation and amortization				(567,328	)		(335,632	)		(146,257	)
			$	2,019,983		$	1,802,668		$	1,228,883

Note 6 — Notes Payable to Related Parties

     Notes payable to parties related by common ownership consists of the following:

	December 31,
	2004		2003		2002
Wise Resources, Ltd.	$	1,000,000	$	1,000,000	$	1,000,000
DCJC, Ltd.		1,000,000		1,000,000		1,000,000
Wise Capital, Ltd.		1,000,000		1,000,000		1,000,000
Coventry Asset Management, Ltd.		1,000,000		1,000,000		1,000,000
	$	4,000,000	$	4,000,000	$	4,000,000

     The notes have interest only payments payable annually at 8%. The notes mature November 1, 2006 and are collateralized by all the assets of Productions. These amounts were paid in full subsequent to yearend.

Note 7 — Related Party Leases

     Productions and the Store occupy facilities, which are owned by parties related by common ownership. Such leases are month-to-month. Lease expense approximated $437,000, $304,000 and $184,000 for the years ended December 31, 2004, 2003, and 2002, respectively. Lease payments to related parties approximated $423,000, $259,000 and $147,000 for the years ended December 31, 2004, 2003 and 2002 respectively.

Note 8 — Retirement Plan

     Employees of Productions may participate in the FUNimation Productions, Ltd. 401(k) Profit Sharing Plan (the “Plan”), whereby eligible employees may elect to make contributions pursuant to a salary reduction agreement upon meeting age requirements. In addition, Productions may make discretionary matching contributions to the Plan up to 3% of each eligible employee’s salary. Productions made contributions to the Plan of approximately $80,000, $53,000 and $43,000 for the years ended December 31, 2004, 2003, and 2002, respectively.

Note 9 — Commitments and Contingencies

     Productions and the Store are involved in various lawsuits and proceedings arising out of the ordinary course of business. Management and legal counsel do not believe that the ultimate resolution of these claims will have a material effect on the results of operations or financial position of Productions or the Store.

     Productions has an employment agreement with an owner and officer that provides that 1% of profits on its major license be paid quarterly, payments in 2004, 2003 and 2002 totaled $104,000, $175,000 and $210,000, respectively.

Note 10 — Subsequent Event — Proposed Sale of Company

     On January 10, 2005, the Company executed a definitive agreement with Navarre Corporation, to sell 100% of the general and limited partnership interests in Productions and Store. It is anticipated that the transaction will close on or prior to March 31, 2005, subject to satisfaction of customary conditions including a requirement that Navarre shall have obtained financing sufficient to consummate the transaction.

EX-99.3

Exhibit 99. 3

FUNimation Productions, Ltd. and
The FUNimation Store, Ltd.

Combined Balance Sheets
March 31, 2005
(Unaudited)
(in thousands)

	2005
Assets
Current assets:
Cash and cash equivalents	$	6,892
Accounts and royalties receivable, net		11,257
Inventories		10,702
Prepaid expenses and other current assets		17
Total current assets		28,868
Property and equipment, net		1,978
License fees, net		18,683
Production costs, net		3,964
Total assets	$	53,493
Liabilities and Partners’ Capital
Accounts payable and accrued liabilities	$	1,917
Accrued market development funds		1,074
Royalties payable		9,782
Deferred revenue		3,334
Total liabilities		16,107
Commitments and contingencies
Partners’ Capital		37,386
Total liabilities and Partners’ Capital	$	53,493

See accompanying notes to unaudited combined financial statements.

FUNimation Productions, Ltd. and
The FUNimation Store, Ltd.

Combined Statements of Income
Three Months Ended March 31, 2005 and 2004
(Unaudited)
(in thousands)

	2005		2004
Net sales:
Wholesale and retail sales	$	3,736	$	11,435
License and royalty revenue		3,030		2,659
Other		226		268
Total net sales		6,992		14,362
Cost of sales		2,980		7,169
Gross Profit		4,012		7,193
Operating expenses:
Selling, general and administrative		2,840		617
Depreciation and amortization		61		113
		2,901		730
Income from operations		1,111		6,463
Interest expense — related party		53		107
Net income	$	1,058	$	6,356

See accompanying notes to unaudited combined financial statements.

FUNimation Productions, Ltd. and
The FUNimation Store, Ltd.

Combined Statements of Cash Flows
Three Months Ended March 31, 2005 and 2004
(Unaudited)
(in thousands)

	2005			2004
Cash flows from operating activities:
Net income	$	1,058		$	6,356
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for returns and doubtful accounts		(3,516	)		(7,050	)
Amortization of license advances		733			1,161
Amortization of production costs		430			301
Depreciation of capital assets		61			113
Changes in deferred revenue		2,882			241
Changes in assets and liabilities:
Accounts receivable		20,705			13,346
Inventory		(629	)		(1,234	)
Prepaid expenses and other assets		94			138
License advance expenditures		(1,940	)		(3,859	)
Production cost expenditures		(1,171	)		(705	)
Accounts payable and accrued liabilities		79			641
Accrued market development funds		111			53
Royalties payable		(717	)		(806	)
Net cash provided by operating activities		18,180			8,696
Cash flows from investing activities:
Capital expenditures		(19	)		(204	)
Bond paid		—			(100	)
Net cash used in investing activities		(19	)		(304	)
Cash flows from financing activities:
Distributions to partners		(12,000	)		—
Payments of notes payable		(4,000	)		—
Net cash used in operating activities		(16,000	)		—
Net increase in cash and cash equivalents		2,161			8,392
Cash and cash equivalents, beginning of period		4,731			4,238
Cash and cash equivalents, end of period	$	6,892		$	12,630
Supplemental disclosure of cash flow information:
Cash paid for interest	$	53		$	107

See accompanying notes to unaudited combined financial statements.

FUNimation Productions, Ltd. and
The FUNimation Store, Ltd.

Notes to Unaudited Combined Financial Statements

Note 1 - Interim Financial Information

In the opinion of management, the accompanying unaudited condensed combined financial statements contain all of the adjustments necessary for a fair presentation of the financial position of FUNimation Productions, Ltd. (“Productions”) and The FUNimation Store, Ltd. (the “Store”) (collectively, the “Company”) as of March 31, 2005 and the results of operations and cash flows for the interim periods presented herein in accordance with accounting principles generally accepted in the United States of America. All such adjustments are of a normal recurring nature. Results of operations and cash flows for the current unaudited interim period are not necessarily indicative of the results that may be expected for the entire fiscal year.

While the Company believes the disclosures presented are adequate to make the information not misleading, it is suggested that these condensed combined financial statements should be read in conjunction with the combined financial statements and notes to the combined financial statements as of and for the years ended December 31, 2004, 2003 and 2002 included in this 8-K/A filing.

Note 2 - Organization and Summary of Significant Accounting Policies

Organization and Business - Productions, a limited partnership, is a diversified entertainment company whose operations consist of the acquisition and production of animated television films for distribution and licensing to broadcast and cable television networks as well as wholesale sales of those films in VHS and DVD formats. In addition, Productions also engages in the acquisition of merchandising licenses.

Store, a limited partnership, is a retail company that sells related program merchandise primarily through the internet. Sales by Store approximated $434,000 and $706,000 during the three months ended March 31, 2005 and 2004, respectively.

Principles of Combination - The combined financial statements include the accounts of Productions and Store. Productions was formed in 1994 as an S-corporation. In 1999, Productions elected to become a limited partnership. The Store was formed at the beginning of 2000 as a limited partnership. Both Productions and the Store are owned by partners that have substantially the same ownership. All significant intercompany balances and transactions have been eliminated in combination.

Partner Capital Accounts - The Companys’ partnership agreements provide that the net cash flow (as defined) shall be distributed to the general and limited partners in accordance with their partnership percentage. Excess revenue over expenses shall be allocated among the general and limited partners in the same proportions as net cash flow described above. Excess expenses over revenue shall be allocated, in all cases, among the general and limited partners in accordance with their partnership percentages.

Management’s Estimates and Assumptions - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company reviews all significant estimates affecting the financial statements on a recurring basis and records the effect of any necessary adjustments prior to their issuance.

Fair Value of Financial Instruments - The carrying amount of the Company’s financial instruments, which principally include cash, trade receivables, accounts payable and accrued expenses, approximates fair value due to the relatively short maturity of such instruments. The fair value of the Company’s debt instruments approximates the amount of future cash flows associated with each instrument. The carrying value of debt instruments are not materially different from fair value, as the interest rate approximates rates currently available to the Company.

FUNimation Productions, Ltd. and
The FUNimation Store, Ltd.

Notes to Unaudited Combined Financial Statements

Cash and Cash Equivalents - Investments in highly liquid securities with original maturities of three months or less are considered cash equivalents.

Accounts and Royalties Receivable - Accounts receivable represent trade receivables from customers less allowances for doubtful accounts and returns. Such allowances are established by management based on historical experience and evaluation of specific accounts. Receivables are charged against the allowance for doubtful accounts when management determines such accounts are uncollectible.

Royalties receivable represent uncollected royalties earned on sale of licensed products, less allowances for doubtful accounts.

A reserve for sales returns is established based on historical trends in product return rates. The reserve for sales returns as of March 31, 2005 was $6,995,000, for estimated future returns that were recorded as an offset to revenues and accounts receivable. If the actual returns were to deviate from the historical data on which the reserve had been established, revenues could be adversely affected.

Revenue Recognition - All revenue is recognized upon meeting the recognition requirements of American Institute of Certified Public Accountants Statement of Position (“SOP”) 00-2, Accounting by Producers or Distributors of Films. Revenues from home video distribution are recognized, net of an allowance for estimated returns, in the period in which the product is available for sale by the Company’s customers (generally upon shipment to the customer and in the case of new releases, after “street date” restrictions lapse). Revenues from broadcast licensing and home video sublicensing are recognized when the programming is available to the licensee and other recognition requirements of SOP 00-2 are met. Fees received in advance of availability are deferred until revenue recognition requirements have been satisfied. Royalties on sales of licensed products are recognized in the period earned. In all instances, provisions for uncollectible amounts are provided at the time of sale.

Inventories - Inventories consist primarily of finished products for sale and are carried at the lower of cost (first-in, first-out method) or market. Management periodically reviews inventory and provides reserves for excess, obsolete or damaged inventory based on changes in customer demand, technology and other economic factors.

Participation Costs and License Fees - License Fees represent fixed minimum advance payments made to program suppliers for exclusive distribution rights. A program supplier’s share of distribution revenues (“Participation Cost”) is retained by the Company until the share equals the License Fees paid to the program supplier plus recoupable production costs and assessed for impairment. Thereafter, any excess is paid to the program supplier. License Fees are amortized as recouped by the Company. Participation costs are accrued in the same ratio that current period revenue for a title or group of titles bear to the estimated remaining unrecognized ultimate revenue for that title.

Production Costs - Production costs represent unamortized costs of films and television programs, which have been produced by Productions or for which Productions has acquired distribution rights. Costs of produced films and television programs include all production costs, which are expected to be recovered from future revenues. Amortization of production costs is determined based on the ratio that current revenue earned from the films and television programs bear to the ultimate future revenue, as defined by SOP 00-2.

When estimates of total revenues and costs indicate that an individual title will result in an ultimate loss, an impairment charge is recognized to the extent that license fees and production costs exceed estimated fair value, based on discounted cash flows, in the period when estimated.

Property, Equipment and Depreciation - Property and equipment are stated at cost. Depreciation is computed over the estimated useful lives (3 to 20 years) of the assets using the straight-line method. The Company periodically reviews the carrying value of its long-lived assets for possible impairment. In management’s opinion, there is no impairment of such assets at March 31, 2005.

FUNimation Productions, Ltd. and
The FUNimation Store, Ltd.

Notes to Unaudited Combined Financial Statements

Royalties Payable - Royalties payable represents management’s estimate of accrued and unpaid ultimate participation costs as of the end of the fiscal year. Royalties are generally due and paid to the licensor one month after each quarterly period for sales of merchandise and license fees received.

Advertising - Advertising costs are expensed as incurred. Advertising expense amounted to approximately $189,000 and $136,000 for the three months ended March 31, 2005 and 2004, respectively.

Market Development Funds - In accordance with Emerging Issues Task Force (“EITF”) 01-09, Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor’s Products, the Company has classified market development funds deducted from payment for purchases by customers as a reduction to revenues.

Income Taxes - The Company is not a taxpaying entity for federal income tax purposes; accordingly, a provision for income taxes has not been recorded in the accompanying financial statements. Partnership income and losses are reflected in the partners’ individual or corporate income tax returns in accordance with their ownership percentages.

Impairment of Long-Lived and Intangible Assets - In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company evaluates the recoverability of the carrying amount of its long-lived assets and certain identifiable intangibles to be held and used by the Company. Such reviews are performed at least annually and whenever events or changes in circumstances indicate full recoverability is questionable.

Assessment of recoverability includes a comparison of the asset’s carrying value to the sum of the undiscounted estimated future cash flows anticipated to be generated from the asset’s use and eventual disposition. If the Company determines that impairment has occurred, the measurement of the impairment will be equal to the excess of the asset’s carrying amount over its fair value. Factors used in ascertaining the estimated fair value include operating income before interest and television ratings, among others. Should the review determine impairment, the loss will be recognized through the statement of income, and the corresponding asset value will be reduced.

Concentration of Credit Risk - As of March 31, 2005, four customers made up 69% of gross accounts receivable. During the three months ended March 31, 2005 and 2004, three and three customers made up 58% and 82% of revenues, respectively. The Company operates under exclusive distribution rights granted by approximately 18 licensors. During the three months ended March 31, 2005 and 2004, 76% and 83% of gross revenue, respectively, was derived from sales of products under multiple licensing arrangements with three and two licensors. The inability to access future licenses through a loss of these licensor relationships could have a material negative effect on the operations of the Company.

Note 3 - Accounts and Royalties Receivables

Accounts and royalties receivable as of March 31, 2005 consists of the following (in thousands):

	2005
Accounts and royalties receivable	$	18,953
Allowance for doubtful accounts		(701	)
Allowance for sales returns		(6,995	)
	$	11,257

FUNimation Productions, Ltd. and
The FUNimation Store, Ltd.

Notes to Unaudited Combined Financial Statements

Note 4 - License Fees

License fees as of March 31, 2005 consists of the following (in thousands):

	2005
License fees	$	34,204
Accumulated amortization		(15,521	)
	$	18,683

Amortization of license fees was $733,000 and $1,161,000 for the three months ended March 31, 2005 and 2004, respectively. These amounts have been included in royalty expense in the accompanying statements of income. License fees are amortized as recouped by the Company.

Note 5 - Production Costs

Production costs as of March 31, 2005 consists of the following (in thousands):

	2005
Production costs	$	14,688
Accumulated amortization		(10,724	)
	$	3,964

Amortization of production costs was approximately $430,000 and $301,000 for the three months ended March 31, 2005 and 2004, respectively. These amounts have been included in cost of sales in the accompanying statements of income.

Note 6 - Property and Equipment

Property and equipment as of March 31, 2005 consists of the following (in thousands):

	Useful Life	2005
Land	—	$	217
Building	20 years		1,532
Fixtures and equipment	3 - 7 years		856
			2,605
Accumulated depreciation and amortization			(627	)
		$	1,978

Note 7 - Related Party Leases

Productions and the Store occupy facilities, which are owned by parties related by common ownership. Such leases are month-to-month. Lease expense approximated $139,000 and $81,000 for the three months ended March 31, 2005 and 2004, respectively.

FUNimation Productions, Ltd. and
The FUNimation Store, Ltd.

Notes to Unaudited Combined Financial Statements

Note 8 - Retirement Plan

Employees of Productions may participate in the FUNimation Productions, Ltd. 401 (k) Profit Sharing Plan (the “Plan”), whereby eligible employees may elect to make contributions pursuant to a salary reduction agreement upon meeting age requirements. In addition, Productions may make discretionary matching contributions to the Plan up to 3% of each eligible employee’s salary. Productions made contributions to the Plan of approximately $28,000 and $13,000 for the three months ended March 31, 2005 and 2004, respectively.

Note 9 - Commitments and Contingencies

Legal Proceedings

In the normal course of business, Productions and the Store are involved in various litigation matters that, other than the matter described below, are incidental to the operation of the business. These matters generally arise out of the ordinary course of business. The Company intends to vigorously defend against the claims discussed below and to vigorously pursue its claims. Because of the contingencies and uncertainties associated with litigation of this kind, it is difficult if not impossible to predict the exposure to the Company, if any, at this juncture.

     Faulconer Productions Music Corp. v. FUNimation Productions, Inc. et al.

Faulconer Productions Music Corporation (FPMC) filed a lawsuit in the U.S. District Court for the Eastern District of Texas on September 24, 2003 alleging that FUNimation Productions, Ltd. and certain other defendants fraudulently induced it to enter into contracts pursuant to which FUNimation had commissioned it to compose music for certain television episodes. FPMC also claims that it owns all copyrights in the music and that FUNimation has infringed upon its music copyrights. FPMC is asserting state law claims for fraudulent inducement, fraudulent misrepresentation, negligent misrepresentation, negligence, breach of contract, unjust enrichment, breach of the duty of good faith and fair dealing, conspiracy to commit fraud, and a host of similar claims related to a proposed settlement agreement related to this case. FPMC seeks damages of approximately $13.0 million.

FUNimation instituted an action against FPMC and Bruce Faulconer, a principle of FPMC, in the U.S. District Court for the Northern District of Texas. These two cases were consolidated in the Eastern District of Texas. FUNimation asserts claims for trademark and copyright infringement, passing off, and breach of contract. Actual damages have not yet been calculated. FUNimation also seeks attorneys’ fees on the copyright infringement and contract claims and in connection with the defense of FPMC’s copyright infringement claims.

FUNimation has filed a motion to dismiss all fraud-based, breach of the duty of good faith and fair dealing, negligent misrepresentation, and negligence claims. Additionally, this motion to dismiss seeks the dismissal of all claims relating to the individual defendants.

Employment Agreement

Productions has an employment agreement with an owner and officer that provides that 1% of profits on its major license be paid quarterly, expense during the three months ended March 31, 2005 and 2004 totaled $78,000 and $0, respectively. This employment agreement was terminated as of May 11, 2005 and no obligations to pay a portion of profits continues at this time.

Note 10 - Subsequent Event

On May 11, 2005 the Company was purchased by Navarre Corporation (“Navarre”), a Minnesota corporation formed in 1983. Navarre publishes and distributes a broad range of home entertainment and multimedia products, including PC software, CD audio, DVD and VHS video, video games and accessories.

EX-99.4

Exhibit 99.4

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     The following unaudited pro forma condensed combined financial statements present the pro forma effect of the acquisition of FUNimation Productions, Ltd. and The FUNimation Store, Ltd. (together “FUNimation”) by Navarre Corporation (“the Company” or “Navarre”) on Navarre’s historical financial position and results of operations using the purchase method of accounting. The acquisition was effective May 11, 2005. The fiscal year of Navarre ends on March 31 of each year, and the fiscal year of FUNimation ends on December 31 of each year. The unaudited pro forma condensed combined balance sheet as of March 31, 2005 is based on the assumption that the FUNimation acquisition had occurred as of that date. The unaudited pro forma condensed combined statements of operations for the year ended March 31, 2005 is based on the assumption that the FUNimation acquisition had occurred at the beginning of the period presented, after giving effect to the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed consolidated financial data.

     The following unaudited pro forma condensed combined balance sheet as of March 31, 2005 has been derived from Navarre’s audited consolidated balance sheet as of March 31, 2005 and FUNimation’s unaudited consolidated balance sheet as of March 31, 2005. The unaudited pro forma condensed combined statements of income for the year ended March 31, 2005 have been derived from Navarre’s audited consolidated statement of operations for the year ended March 31, 2005 and FUNimation’s audited combined statement of operations for the year ended December 31, 2004.

     The unaudited pro forma condensed consolidated financial data and allocation of purchase price are based on assumptions, estimates and adjustments which are preliminary and have been made solely for purposes of developing such pro forma information. The pro forma adjustments represent our preliminary determinations of these adjustments and are based on available information and certain assumptions we consider reasonable under the circumstances. Final amounts could differ from those set forth herein and are subject to finalization of a third party valuation.

     The unaudited pro forma condensed combined financial statements may not be indicative of the results of operations that would have been achieved if the FUNimation acquisition had occurred on the dates indicated or which we may achieve in the future.

     The unaudited pro forma condensed combined financial statements and notes thereto should be read in conjunction with the historical financial information of FUNimation included with this filing on Form 8-K/A and Navarre’s Annual Report on Form 10-K and Form 10-K/A for the fiscal year ended March 31, 2005.

Unaudited Pro Forma Condensed Combined Balance Sheet
as of March 31, 2005

	Historical					Pro Forma
	Navarre			FUNimation		Adjustments			Combined
				(In thousands)
Assets
Current assets:
Cash and cash equivalents	$	15,519		$	6,892	$	33,383	(1)	$	55,794
Note receivable, related parties		2,700			—		—			2,700
Accounts and royalty receivable, net		94,003			11,257		—			105,260
Inventories		40,593			10,702		—			51,295
Prepaid expenses and other current assets		10,028			17		—			10,045
Deferred tax assets		7,250			—		—			7,250
Total current assets		170,093			28,868		33,383			232,344
Property and equipment, net		8,081			1,978		—			10,059
Other assets:
Note receivable, related parties		200			—		—			200
Goodwill		9,832			—		80,459	(2)		90,291
Intangible assets, net		5,174			—		—			5,174
Other assets		4,422			22,647		2,917	(3)		29,986
Total assets	$	197,802		$	53,493	$	116,759		$	368,054
Liabilities and Shareholders’ Equity
Current liabilities:
Capital lease obligation – short term	$	84		$	—	$	—		$	84
Accounts payable		96,146			1,917		—			98,063
Income taxes payable		8			—		—			8
Accrued expenses		14,664			14,190		—			28,854
Total current liabilities		110,902			16,107		—			127,009
Long term debt		—			—		140,000	(4)		140,000
Capital lease obligation – long term		237			—		—			237
Deferred compensation		4,000			—		—			4,000
Deferred tax liabilities		1,957			—		—			1,957
Total liabilities		117,096			16,107		140,000			273,203
Commitments and contingencies
Shareholders’ equity:
Common stock, no par value		123,445			—		14,145	(5)		137,590
Partner’s capital		—			37,386		(37,386	)(6)		—
Accumulated deficit		(42,739	)		—		—			(42,739	)
Total shareholders’ equity		80,706			37,386		(23,241	)		94,851
Total liabilities and shareholders’ equity	$	197,802		$	53,493	$	116,759		$	368,054

The accompanying notes are an integral part of this unaudited pro forma condensed combined balance sheet.

Notes to Unaudited Pro Forma Condensed Combined Balance Sheet

As of March 31, 2005

(1) Represents the remaining net proceeds from debt financing (see Note 4 below), after payment of $100.4 million cash portion of the purchase price for the FUNimation acquisition and costs related to the FUNimation acquisition.

(2) Represents goodwill associated with the FUNimation acquisition, calculated as follows:

Total purchase price:
Cash consideration	$	100,400
Common stock issued		14,145
Costs associated with the transaction		3,300
	$	117,845
Less historical net assets acquired, including:
Current assets		(28,868	)
Property and equipment		(1,978	)
Identifiable intangibles		(22,647	)
Plus liabilities assumed		16,107
Preliminary amount of purchase price assigned to goodwill	$	80,459

The final allocation of consideration to acquired intangible assets is subject to an independent appraisal and final analysis of the fair market value of individual items acquired.

The final allocation of the purchase price is also subject to the determination of the total equity value of FUNimation as of the closing date of the FUNimation acquisition and final settlement of the account receivables holdback adjustment in accordance with the terms of the FUNimation acquisition agreement. We expect the FUNimation total equity value determination to be finalized during the six months following the closing of the FUNimation acquisition, and we expect the accounts receivable holdback amount, less any amount retained by us, to be released to the FUNimation sellers within 120 days following the closing of the FUNimation acquisition. Any adjustments made as a result of the FUNimation total equity value and the holdback adjustment could result in a change in goodwill of up to $5.0 million.

The above purchase price does not reflect additional consideration of up to $17.0 million in cash that may be owed to the FUNimation sellers if certain financial targets relating to the FUNimation business are met during the five-year period following the closing of the FUNimation acquisition.

(3) Represents costs related to the debt agreement to finance the FUNimation acquisition.

(4) Represents the proceeds from debt financing which consists of a Term Loan B sub-facility and a Term Loan C sub-facility. The facility amounts will be repaid at an annual rate of $5.0 million plus interest, an annual payment based on a percentage of free cash flow as defined by the debt agreement, and a balloon payment at the end of the term. The Term Loan B sub-facility expires in May 2011 and the Term Loan C sub-facility expires in November 2011. The net proceeds were used to pay the $100.4 million cash portion of the purchase price for the FUNimation acquisition and for general working capital needs.

(5) The actual number of shares to be issued in connection with the FUNimation acquisition were determined by dividing $25.0 million by the average volume-weighted price of our common stock for the 20-trading day period immediately preceding the closing date of the FUNimation acquisition, subject to a minimum of 1,495,216 shares and a maximum of 1,827,486 shares. The maximum 1,827,486 shares of Common Stock were issued at $7.74.

(6) Represents the elimination of the FUNimation partners’ capital upon closing of the FUNimation acquisition.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended March 31, 2005

	Historical			Historical			Pro Forma			Pro Forma
(In thousands, except for per share amounts)	Navarre			FUNimation(1)			Adjustment			Combined
Net sales	$	596,263		$	72,393		$	—		$	668,656
Cost of sales		505,151			31,491			—			536,642
Gross profit		91,112			40,902			—			132,014
Operating expenses:
Selling and marketing		21,483			3,770			—			25,253
Distribution and warehousing		8,840			261			—			9,101
General and administrative		44,934			6,501			—			51,435
Depreciation and amortization		3,521			232			—			3,753
		78,778			10,764			—			89,542
Income from operations		12,334			30,138			—			42,472
Other income (expense):
Interest expense		(778	)		(320	)		(12,066	)(2)		(13,164	)
Interest income		565			—			—			565
Other income (expense)		(65	)		—			—			(65	)
Income before income taxes		12,056			29,818			(12,066	)		29,808
Income tax benefit (expense)(3)		492			—			(6,036	)		(5,544	)
Net income	$	12,548		$	29,818		$	(18,102	)	$	24,264
Basic income per share	$	0.47								$	0.85
Diluted income per share	$	0.44								$	0.79
Basic weighted average common shares outstanding		26,830									28,657	(4)
Diluted weighted average common shares outstanding		28,782									30,609	(4)

(1)	Historical FUNimation financial information is for the year ended December 31, 2004.
(2)	Adjusts for interest expense at a pro forma rate of 8.5% related to the $140.0 million of Term B notes related to the FUNimation acquisition and amortization of debt issuance costs of $2,917,000 amortized over six years.
(3)	In the historical period set forth above, Navarre had net operating loss carryforwards that offset all or a significant portion of its taxable income. The pro formas were prepared assuming such net operating loss carryforwards were fully utilized in the pro forma period. Accordingly, the pro formas include a provision for pro forma income tax expense assuming an effective tax rate of 37% for Navarre and an effective tax rate of 34% for FUNimation. The difference in assumed tax rates for Navarre and FUNimation results from a higher combined federal and state income tax rate applicable to Navarre. At April 1, 2004, we had $11.0 million of net operating loss carryforwards and, at March 31, 2005, we had no deferred tax asset valuation allowance.
(4)	Represents the issuance of 1,827,486 shares of Navarre common stock in connection with the FUNimation acquisition. Per the purchase agreement, the actual number of shares issued was determined by dividing $25.0 million by the average volume-weighted price of our common stock for the 20-trading day period immediately prior to the closing date of the transaction, subject to a minimum of 1,495,216 shares and a maximum of 1,827,486 shares.