8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

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

Date of Report (Date of earliest event reported): November 7, 2007

NAVARRE CORPORATION

(Exact name of Registrant as specified in its charter)

Minnesota	000-22982	41-1704319
(State or other jurisdiction	(Commission	(I.R.S. Employer
of incorporation)	File Number)	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

Press Release

Item 2.02 Results of Operations and Financial Condition

On November 7, 2007, Navarre Corporation issued a press release announcing its financial results for the period ending September 30, 2007. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.

Neither the information in this Form 8-K nor the information in the press release shall be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

Item 9.01. Financial Statements and Exhibits

(d)       Exhibits:

   99.1        Press Release, dated November 7, 2007, issued by Navarre Corporation.

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: November 8, 2007	By:	/s/ J. Reid Porter
		Name:	J. Reid Porter
		Title:	Chief Financial Officer and Executive Vice President

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release issued by Navarre Corporation, dated November 7, 2007

EX-99.1

Exhibit 99.1

For Additional Information:
Navarre Investor Relations
763-535-8333
ir@navarre.com

NAVARRE CORPORATION REPORTS FINANCIAL RESULTS
FOR SECOND QUARTER OF FISCAL YEAR 2008

Company to Host Conference Call on November 8, 2007, at 10:00 a.m. EST

MINNEAPOLIS, MN – November 7, 2007 – Navarre Corporation (NASDAQ: NAVR) a publisher and distributor of physical and digital home entertainment and multimedia software products, today reported its fiscal year 2008 second quarter results for the period ending September 30, 2007.

Financial Results – Second Quarter Fiscal Year 2008

• Net sales from continuing operations were $143.7 million, as compared to $158.9 million for the second quarter of fiscal year 2007, a decrease of $15.2 million or 9.6%.

• Net loss was $400,000, or a loss of $0.01 per diluted share, as compared to net income in the second quarter of fiscal year 2007 of $1.6 million, or $.04 per diluted share.

• Net income from continuing operations for the second quarter was $200,000, or $0.01 per diluted share, as compared to net income from continuing operations in the second quarter of fiscal year 2007 of approximately $1.5 million, or $0.04 per diluted share.

• Earnings before interest, taxes, depreciation, amortization (EBITDA) from continuing operations for the second quarter was $4.4 million as compared to $7.3 million for the second quarter of fiscal year 2007, a decrease of $2.9 million or 39.7%. See “Use of Non-GAAP Financial Information” below.

Financial Results – Year to Date Fiscal Year 2008

• Net sales from continuing operations in the first six months were $280.7 million, as compared to $291.0 million for the first six months of fiscal year 2007, a decrease of $10.3 million or 3.5%.

• Net income from continuing operations during the first six months was $2.1 million, or $0.06 per diluted share, as compared to net income from continuing operations in the first six months of fiscal year 2007 of approximately $2.0 million, or $0.06 per diluted share.

• Earnings before interest, taxes, depreciation, amortization (EBITDA) from continuing operations for the first six months of fiscal year 2008 was $11.7 million as compared to $12.7 million for the first six months of fiscal year 2007, a decrease of $1.0 million or 7.9%. See “Use of Non-GAAP Financial Information” below.

Cary Deacon, Chief Executive Officer, commented, “We experienced a difficult second quarter. Our shortfall from operating expectations was primarily in two areas. BCI’s results were disappointing relative to budget, as we consolidated its operations and work towards defining its niche in the DVD sector. In the quarter, our distribution business experienced a year over year decline of approximately $6 million related to the strategic decision to exit an unprofitable major studio DVD contract with a retail partner. As well, CompUSA store closings resulted in a decline of approximately a $5 million on a year over year basis in our distribution business.

Additionally, we went live on September 1, 2007 with Phase 1, the financial, sales and distribution and procurement portions of our new ERP system. In its early stages the system implementation was a massive undertaking that commanded the total organization’s attention. We believe that the system is now stabilized and are moving forward with the implementation of Phase 2, the transportation and warehousing portion.”

Deacon continued, “Although the second quarter was difficult, we remain optimistic about the third and fourth quarters of this fiscal year. Our preliminary October sales results are encouraging. We continue to work towards getting BCI on track.”

Business Segment Highlights

Publishing Segment

The publishing segment includes the results of the wholly-owned subsidiaries FUNimation, Encore and BCI. For the second quarter ended September 30, 2007, the publishing segment’s net sales, before inter-company eliminations, decreased 22.1% to $27.0 million, as compared to net sales of $34.7 million for the same period last year. See “Use of Non-GAAP Financial Information” below.

FUNimation and Encore met sales and profit expectations in the quarter. The strength of FUNimation’s product release schedule for fiscal year 2008 is primarily in the first and fourth quarters. As a result, FUNimation accounted for most of the Publishing segment’s sales decline on a year over year basis.

BCI’s sales declined as compared to last year and it incurred a quarterly loss. During the quarter the Company announced the relocation of BCI’s corporate headquarters and the cost of this office consolidation was mainly incurred in the second quarter. The Company continues to focus its efforts to reposition BCI into the Latino and budget categories.

Distribution Segment

The distribution segment distributes PC software, DVD video, video games and accessories. For the second quarter ended September 30, 2007, the distribution segment’s net sales, before inter-company eliminations, decreased 6.5% to $133.4 million, as compared to net sales of $142.6 million for the same period last year. See “Use of Non-GAAP Financial Information” below.

Distribution net sales were negatively impacted by approximately $11 million due to store closings at CompUSA and our strategic decision to exit the unprofitable major studio DVD business with a key customer. Software sales remained relatively constant as compared to the comparable period of the 2007 fiscal year.

ERP Implementation

As previously disclosed, the Company is undergoing an implementation of a new Enterprise Resource Planning (ERP) system. This ERP system is being licensed from SAP Americas, Inc. and the Company is utilizing Deloitte Consulting LLP as its implementation partner. When the implementation of this ERP system is completed, it will operate all of the Company’s financial reporting, manufacturing and

warehousing processes. The first of two phases of this ERP system implementation went live in September 2007. Phase two, which involves warehouse and transportation management systems, is anticipated to be installed in the summer of fiscal year 2009.

Reid Porter, Executive Vice President and Chief Financial Officer, commented, “Although the implementation of this ERP system has been challenging, the Company has continued to operate effectively despite the significant time, attention and resources that have been focused on this first phase. We are already seeing an enhanced flow of information coming from this new system.”

Discontinued Operations

In connection with the Company’s May 31, 2007, sale of its independent music business to Koch Entertainment, the Company received $6.5 million in cash at closing and retained trade receivables valued at approximately $11 million. Collection of these trade receivables has met the Company’s expectations. Net proceeds from this transaction and the collection of associated receivables are being used to pay down the Company’s debt. Discontinued operations realized a net loss of $597,000, or $.02 per diluted share during the second quarter of fiscal year 2008. The Company anticipates incurring modest additional losses from discontinued operations for the remainder of the year. The Company anticipates a net gain from the sale of the independent music business, offset by discontinued operating losses, to be in excess of $2 million in fiscal year 2008.

Outlook

Based on the operating results for the first six months and a cautious approach in the retail marketplace over the next several months, the Company is updating its fiscal year 2008 guidance as follows:

• The Company anticipates consolidated net sales of between $620 million and $640 million.

• Earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations are expected to be between $29 million and $31 million.

• Anticipated net income of between $9 million and $10 million.

• Anticipated depreciation and amortization expense of approximately $10 million.

• Anticipated share-based compensation expense of approximately $1 million.

• Cash flow from operations is anticipated to again be positive for fiscal year 2008 results.

Use of Non-GAAP Financial Information

In evaluating our financial performances and operating trends, management considers information concerning our net sales before inter-company eliminations and earnings before interest, taxes, depreciation and amortization that are not calculated in accordance with generally accepted accounting principles (“GAAP”) in the United States of America. The Company’s management believes these non-GAAP measures are useful to investors because they provide supplemental information that facilitates comparisons to prior periods and for the evaluation of financial results. Management uses these non-GAAP measures to evaluate its financial results, develop budgets and manage expenditures. The method the Company uses to produce non-GAAP results is not computed according to GAAP, is likely to differ from the methods used by other companies and should not be regarded as a replacement for corresponding GAAP measures. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results, which is attached to this release and can also be found on the Company’s web site at http://www.navarre.com.

Conference Call

The Company will host a conference call at 10:00 a.m. ET, Thursday, November 8, 2007, to discuss the Company’s results. The conference call can be accessed by dialing (866)356-3093, conference participant passcode “48293213”, ten minutes prior to the scheduled start time. In addition, this call will be simultaneously broadcast live over the internet and can be accessed in the “Investors” section of the Company’s web site located at http://www.navarre.com. Those wishing to access the call through the internet should go to the Company’s web site 15 minutes prior to the start time to register and download any necessary software needed to listen to the call. A replay of the conference call will be available at the Company’s web site following the call’s completion.

About Navarre Corporation

Navarre Corporation (Nasdaq: NAVR) is a publisher and distributor of physical and digital home entertainment and multimedia products, including PC software, DVD video, video games and accessories. Navarre licenses and publishes home entertainment and multimedia content through its Encore, BCI, and FUNimation subsidiaries and has established distribution relationships with customers across a wide spectrum of retail channels which includes mass merchants, discount retailers, wholesale clubs, office and electronic superstores, military sales and e-tailers nationwide. Navarre was founded in 1983 and is headquartered in New Hope, Minnesota. Additional information is available at http://www.navarre.com.

Safe Harbor

The statements in this press release that are not strictly historical are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to be covered by the safe harbors provided therein. The forward-looking statements are subject to risks and uncertainties, and the actual results that the Company achieves may differ materially from these forward-looking statements due to such risks and uncertainties, including, but not limited to: the Company’s revenues being derived from a small group of customers; the seasonal nature of the Company’s business; the potential for the Company to incur significant additional costs and to experience operational and logistical difficulties in connection with its implementation of a new ERP system; pending litigation or regulatory investigation of the Company may result in significant costs; Company’s dependence on significant vendors; uncertain growth in the publishing segment; the Company’s ability to meet significant working capital requirements related to distributing products; and the Company’s ability to compete effectively in the highly competitive distribution and publishing industries. In addition to these, a detailed statement of risks and uncertainties is contained in the Company’s reports to the Securities and Exchange Commission, including in particular the Company’s Form 10-K for the year ended March 31, 2007, as well as its other SEC filings and public disclosures.

Investors and shareholders are urged to read this press release carefully. The Company can offer no assurances that any projections, assumptions or forecasts made or discussed in this press release will be met, and investors should understand the risks of investing solely due to such projections. The forward-looking statements included in this press release are made only as of the date of this report and the Company undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances.

Investors and shareholders may obtain free copies of the public filings through the website maintained by the SEC at http://www.sec.gov/ or at one of the SEC’s other public reference rooms in Washington D.C., New York, New York or Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information with respect to the SEC’s public reference rooms.

NAVARRE CORPORATION
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Net sales	$	143,715		$	158,893		$	280,737		$	291,065
Cost of sales (exclusive of depreciation and amortization)		121,654			130,627			234,693			240,009
Gross profit		22,061			28,266			46,044			51,056
Operating expenses:
Selling and marketing		6,685			7,695			13,599			14,232
Distribution and warehousing		3,100			2,981			5,343			5,427
General and administrative		8,298			8,294			16,248			16,078
Bad debt expense		30			2,362			85			2,819
Depreciation and amortization(1)		2,323			2,683			4,541			5,307
Total operating expenses		20,436			24,015			39,816			43,863
Income from operations		1,625			4,251			6,228			7,193
Other income (expense):
Interest expense		(1,405	)		(2,007	)		(3,079	)		(3,927	)
Interest income		56			92			124			211
Warrant expense		—			173			—			(251	)
Other income (expense), net		148			20			371			102
Net income before income tax		424			2,529			3,644			3,328
Income tax expense		(202	)		(1,013	)		(1,516	)		(1,336	)
Net income (loss) from continuing operations		222			1,516			2,128			1,992
Discontinued operations, net of tax
Gain on sale of discontinued operations		(3	)		—			4,644			—
Income (loss) from discontinued operations		(594	)		96			(1,703	)		254
Net income	$	(375	)	$	1,612		$	5,069		$	2,246
Basic earnings (loss) per common share:
Continuing operations	$	.01		$	.05		$	.06		$	.06
Discontinued operations	$	(.02	)	$	—		$	.08		$	—
Net income	$	(.01	)	$	.05		$	.14		$	.06
Diluted earnings per common share:
Continuing operations	$	.01		$	.04		$	.06		$	.06
Discontinued operations	$	(.02	)	$	—		$	.08		$	—
Net income	$	(.01	)	$	.04		$	.14		$	.06
Weighted average shares outstanding:
Basic		36,110			35,735			36,048			35,691
Diluted		36,303			36,201			36,289			36,184

(1) Depreciation and amortization expense in the three months ended September 30, 2007 and 2006 includes $894,000 and $1.5 million, respectively, and in the six months ended September 30, 2007 and 2006 includes $1.8 million and $3.0 million, respectively, of amortization expense related to the FUNimation acquisition.

NAVARRE CORPORATION
Consolidated Condensed Balance Sheet
(In thousands)
(Unaudited)

	September 30,		September 30,		March 31,
	2007		2006		2007
Assets
Current assets:
Cash and cash equivalents	$	—	$	8,406	$	966
Receivables, net		84,077		91,237		70,609
Inventories		59,192		57,647		36,791
Other		25,251		23,150		20,889
Assets from discontinued operations — current		143		26,103		21,889
Total current assets		168,663		206,543		151,144
Property and equipment, net		16,882		11,256		14,042
Other assets		127,253		126,480		122,696
Assets from discontinued operations – non current		—		400		343
Total assets	$	312,798	$	344,679	$	288,225
Liabilities and shareholders’ equity
Current liabilities:
Note payable – line of credit	$	43,049	$	—	$	38,956
Note payable – short-term		150		5,000		150
Accounts payable		111,015		118,028		87,145
Other		21,574		13,738		13,680
Liabilities from discontinued operations — current		796		17,234		12,748
Total current liabilities		176,584		154,000		152,679
Long-term liabilities:
Note payable – long-term		9,670		72,630		14,850
Other		7,155		7,050		7,245
Total liabilities		193,409		233,680		174,774
Shareholders’ equity		119,389		110,999		113,451
Total liabilities and shareholders’ equity	$	312,798	$	344,679	$	288,225

NAVARRE CORPORATION
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)

	Six Months Ended
	September 30,
	2007			2006
Net cash used in operating activities	$	(9,578	)	$	(979	)
Net cash used in investing activities		(9,313	)		(3,749	)
Net cash provided by (used in) financing activities		4,847			(2,316	)
Net cash provided by discontinued operating activities		6,578			1,154
Proceeds from sale on discontinued operations		6,500			—
Net increase (decrease) in cash		(966	)		(5,890	)
Cash at beginning of period		966			14,296
Cash at end of period	$	—		$	8,406

NAVARRE CORPORATION
Supplemental Information
(In thousands)
(Unaudited)

Reconciliation of Net Sales Before Inter-Company Eliminations to GAAP Net Sales and Business Segment Information

	Three Months Ended September 30,												Six Months Ended September 30,
	2007			%			2006			%			2007			%			2006			%
Net sales:
Distribution	$	133,391			83.1	%	$	142,638			80.4	%	$	257,281			82.0	%	$	261,222			81.1	%
Publishing		27,043			16.9	%		34,705			19.6	%		56,666			18.0	%		60,743			18.9	%
Net sales before inter-company eliminations		160,434						177,343						313,947						321,965
Inter-company eliminations		(16,719	)					(18,450	)					(33,210	)					(30,900	)
Net sales as reported	$	143,715					$	158,893					$	280,737					$	291,065
Income from continuing operations:
Distribution	$	377					$	(110	)				$	1,951					$	823
Publishing		1,248						4,361						4,277						6,370
Consolidated income from continuing operations	$	1,625					$	4,251					$	6,228					$	7,193

Reconciliation of Net Income (Loss) from Continuing Operations to EBITDA

	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
Net income from continuing operations, as reported	$	222	$	1,516	$	2,128	$	1,992
Interest expense (income), net		1,349		1,915		2,955		3,716
Tax expense		202		1,013		1,516		1,336
Depreciation and amortization		2,323		2,683		4,541		5,307
Share-based compensation		279		156		567		300
EBITDA	$	4,375	$	7,283	$	11,707	$	12,651