UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K/A
(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, 2005 | ||
or | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number0-22982
___________________
NAVARRE CORPORATION
Minnesota | 41-1704319 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
7400 49th Avenue North, New Hope, MN 55428
(Address of principal executive offices)
(763) 535-8333
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
Common Stock, No par value | NASDAQ National Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.o
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b of the Act). Yesþ Noo
The aggregate market value of the voting stock held by non-affiliates of the Registrant at September 30, 2004 was $347,525,175 based on the closing sale price on such date of $14.49 per share.
The Registrant had 29,752,166 shares of Common Stock, no par value, outstanding at June 9, 2005.
DOCUMENTS INCORPORATED BY REFERENCE
None.
EXPLANATORY NOTE
We are filing this Amendment No. 1 to our Annual Report on Form 10-K (“the Annual Report”) originally filed on June 14, 2005 with the Securities and Exchange Commission, solely for the purpose of including the Reconciliation of GAAP Net Sales to Net Sales before Inter-Company Eliminations information in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Except as described above, no other changes have been made to Item 7 of Part II or are being made to the Annual Report. This Form 10-K/A does not reflect events occurring after the June 14, 2005 filing of the Annual Report nor does it modify or update the disclosure contained in the Annual Report in any way other than described in this Explanatory Note. This Amendment also includes, as did the Annual Report, the certifications of the registrant’s executive officers required pursuant to Item 15 of the Annual Report. This Amendment presents Item 7 of Part II, as amended, in its entirety.
NAVARRE CORPORATION
FORM 10-K/A(Amendment #1)
TABLE OF CONTENTS
PART II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 1 | |||
PART IV | ||||
Item 15. Exhibits and Financial Statement Schedules | 11 | |||
Signatures | 21 | |||
Certification of CEO Pursuant to Section 302 | ||||
Certification of CFO Pursuant to Section 302 | ||||
Certification of CEO Pursuant to Section 906 | ||||
Certification of CFO Pursuant to Section 906 |
PART II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Navarre Corporation, a Minnesota corporation formed in 1983, 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. Our business is divided into two business segments – Distribution and Publishing. Through these business segments we maintain and leverage strong relationships throughout the publishing and distribution chain.
Our broad base of customers includes: (i) wholesale clubs, (ii) mass merchandisers, (iii) other third-party distributors, (iv) computer specialty stores, (v) music specialty stores, (vi) book stores, (vii) office superstores, and (viii) electronic superstores. Our customer base includes over 500 individual customers with over 18,000 locations, certain of which are international locations.
Through our distribution business we distribute and provide fulfillment services in connection with a variety of finished goods that are provided by our vendors, which include PC software and video game publishers and developers, independent and major music labels, and major motion picture studios. These vendors provide us with PC software, CD audio, DVD and VHS video, and video games and accessories, which we in turn distribute to our retail customers. Our distribution business focuses on providing vendors and retailers with a range of value-added services, including vendor-managed inventory, Internet-based ordering, electronic data interchange services, fulfillment services, and retailer-oriented marketing services.
Through our publishing business we own or license various PC software, CD audio, and DVD and VHS video titles. Our publishing business packages, brands, markets and sells directly to retailers, third-party distributors, and our distribution business. Our publishing business currently consists of Encore, BCI and FUNimation. Encore, which we acquired in July 2002, licenses and publishes personal productivity, genealogy, education and interactive gaming PC products. BCI, which we acquired in November 2003, is a provider of niche DVD and video products and in-house produced CDs and DVDs. FUNimation, acquired on May 11, 2005, is a leadinganimeand children’s animation content provider in the United States.
Restatements
In June 2005, our management, after consultation with the Audit Committee of the Board of Directors, determined that our consolidated financial statements for the third fiscal quarter ended December 31, 2003, year ended March 31, 2004, first fiscal quarter ended June 30, 2004, second fiscal quarter ended September 30, 2004, and third fiscal quarter ended December 31, 2004 should no longer be relied upon. As a result of the fiscal year 2005 audit, it was determined that expenses related to the incentive-based deferred compensation of our Chief Executive Officer should have been recorded in the third fiscal quarter of 2004 and first fiscal quarter of 2005. As a result, additional expenses and accrued liabilities of $1.5 million and $2.2 million were recorded in these quarters, respectively. These expenses were determined in accordance with the provisions of the Chief Executive Officer’s 2001 employment agreement.
It was also determined that our deferred tax benefit recorded in the third fiscal quarter of 2005 was improperly included in income and should have increased common stock. Consequently, the tax benefit of
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$2.4 million recognized during the third fiscal quarter of 2005 was reduced and common stock increased by the same amount.
The consolidated financial statements for our third fiscal quarter ended December 31, 2003, year ended March 31, 2004, first fiscal quarter ended June 30, 2004, second fiscal quarter ended September 30, 2004, and third fiscal quarter ended December 31, 2004 and notes thereto included in this annual report on Form 10-K have been restated to include the effects of the expenses related to the incentive-based deferred compensation of our Chief Executive Officer and the deferred tax benefit recorded in income that should have increased common stock.
Executive Summary
Fiscal 2005 was another year of growth for Navarre Corporation. Our consolidated net sales for fiscal 2005 increased 26.6% to $596.3 million compared to $470.9 million in fiscal 2004. This growth was achieved through increases in all of our product groups. Our gross profit increased to $91.1 million or 15.3% of net sales for fiscal 2005 compared with $58.0 million or 12.3% of net sales for fiscal 2004. The increase in gross margin percent for 2005 was primarily due to the continued expansion of our higher margin publishing segment.
Total operating expenses for fiscal 2005 were $78.8 million or 13.2% of net sales, compared with $50.3 million or 10.7% of net sales for fiscal 2004. We incurred an increase in expenses during fiscal 2005 due to compensation expense of $5.8 million that resulted from our acquisition of the remaining twenty percent ownership position in Encore, incentive-based deferred compensation expense of $2.5 million related to our CEO’s employment agreement, expense of $1.2 million related to Sarbanes-Oxley Act of 2002 compliance, and FUNimation transaction expenses of $578,000. Additionally, certain operating expenses (information technologies, warehouse expenses and freight charges) were approximately 0.6% above our prior year percent of net sales. This increase was primarily due to the building of a new warehouse and certain improvements to our warehouse operating systems during fiscal 2005. We expect these certain operating expenses to trend to our historical averages and management intends to focus on obtaining further efficiencies in fiscal 2006. Net income for fiscal 2005 increased to $12.5 million or $0.44 per diluted share compared to $7.4 million or $0.31 per diluted share for last year.
We acquired the general and limited partnership interests of FUNimation in May 2005. This acquisition resulted in a substantial increase in our debt level, but has the potential to add substantial revenues and profits to our publishing business in fiscal 2006. We expect this segment to grow during fiscal 2006 with the addition of business generated through this acquisition.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we review and evaluate our estimates, including those related to customer programs and incentives, product returns, bad debt, inventories, long-lived assets including intangible assets, goodwill, income taxes, contingencies and litigation. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies are affected by our judgment, estimates and/or assumptions used in the preparation of our consolidated financial statements.
Revenue Recognition
We recognize revenue on products shipped when title and risk of loss transfers, delivery has occurred, the price to the buyer is determinable and collectibility is reasonably assured. We recognize service revenues upon delivery of the services. Service revenues have represented less than 10% of total net sales for fiscal 2005, 2004 and 2003. Under specific conditions, we permit our customers to return products. We record a general reserve for sales returns and allowances against amounts due to reduce the net recognized receivables to the amounts we reasonably
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believe will be collected. These reserves are based on the application of the our average historical gross profit percent against averages sales returns, sales discounts percent against average gross sales and specific reserves for marketing programs. Our actual sales return rates have averaged between 13% to 17% over the past three years. Although our past experience has been a good indicator of future reserve levels, there can be no assurance that our current reserve levels will be adequate in the future.
Our distribution customers at times qualify for certain price protection benefits from our vendors. We serve as an intermediary to settle these amounts between vendors and customers. We account for these amounts as reductions of revenues with corresponding reductions in cost of sales.
Our publishing business at times provides certain price protection, promotional monies, volume rebates and other incentives to customers. We record these amounts as reductions in revenue.
Allowance for Doubtful Accounts
We perform periodic credit evaluations of our customers’ financial condition and generally do not require collateral. We make estimates of the uncollectibility of our accounts receivable, including advances and balances with independent labels. In determining the adequacy of our allowances, we analyze customer financial statements, historical collection experience, aging of receivables, substantial down-grading of credit scores, bankruptcy filings, and other economic and industry factors. Although we utilize risk management practices and methodologies to determine the adequacy of the allowance, it is possible that the accuracy of the estimation process could be materially impacted by different judgments as to collectibility based on the information considered and further deterioration of accounts. Our largest collection risks exist for retail customers that are in bankruptcy, or at risk of bankruptcy. The occurrence of these events is infrequent and has diminished slightly over the last few years, but can be material when they occur. Although credit losses relating to customers consistently have been within management’s expectations, if circumstances change (i.e., higher than expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial obligations to us), our estimates of the recoverability of amounts due could be reduced by a material amount.
Goodwill Impairment
We review goodwill for potential impairment annually for each reporting unit or when events or changes in circumstances indicate the carrying value of the goodwill might exceed its current fair value. We have no goodwill associated with our distribution segment, while our publishing segment has goodwill. We determine fair value using widely accepted valuation techniques, including discounted cash flow and market multiple analysis. These types of analyses require us to make certain assumptions and estimates regarding industry economic factors and the profitability of future business strategies. We conduct impairment testing at least once annually based on our most current business strategy in light of present industry and economic conditions, as well as future expectations. Our goodwill consisted of $ 9.8 million and $10.4 million as of March 31, 2005 and 2004, respectively. If the operating results for our publishing segment deteriorate considerably and are not consistent with our assumptions and estimates, we may be exposed to a goodwill impairment charge that could be material.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards (SFAS) No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as property and equipment and amortizable intangible assets, are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. An impairment loss is recognized when estimated undiscounted cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value. If our results from operations deteriorate considerably and are not consistent with our assumptions, we may be exposed to a material impairment charge.
Inventory Valuation
Our inventories are recorded at the lower of cost or market. We use certain estimates and judgments to properly value inventory. We monitor our inventory to ensure that we properly identify inventory items that are slow-moving and non-returnable, on a timely basis. The primary risk in our distribution business is
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product that has been purchased from vendors that cannot be sold at full distribution prices and is not returnable to the vendors. The primary risk in our publishing business is that certain products may run out of shelf life and be returned. Generally, these products can be sold in bulk to a variety of liquidators. We establish reserves for the difference between carrying value and estimated realizable value in the periods when we first identify the lower of cost or market issue. If future demand or market conditions are less favorable than current analyses, additional inventory write-downs or reserves may be required and would be reflected in cost of sales in the period the determination is made.
Income Taxes
Income taxes are recorded under the liability method. Deferred income taxes are provided for temporary differences between the financial reporting and tax basis of assets and liabilities. In the preparation of our consolidated financial statements, management is required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax exposures together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. Management reviews its deferred tax assets for recoverability on a quarterly basis and assesses the need for valuation allowances. These deferred tax assets are evaluated by considering historical levels of income, estimates of future taxable income streams and the impact of tax planning strategies. A valuation allowance is recorded to reduce deferred tax assets when it is determined that it is more likely than not that we would not be able to realize all or part of our deferred tax assets. We carried no valuation allowance against our net deferred tax assets at March 31, 2005 and a valuation allowance of $7.2 million at March 31, 2004. We expect to operate on a fully taxable basis for fiscal 2006.
Contingencies and Litigation
There are various claims, lawsuits and pending actions against us incidental to our operations. If a loss arising from these actions is probable and can be reasonably estimated, we record the amount of the estimated loss. If the loss is estimated using a range within which no point is more probable than another, the minimum estimated liability is recorded. Based on current available information, we believe that the ultimate resolution of these actions will not have a material adverse effect on our consolidated financial statements (see Note 16 to our consolidated financial statements). As additional information becomes available, we assess any potential liability related to these actions and may need to revise our estimates. Future revisions of our estimates could materially impact our consolidated results of operations, cash flows or financial position.
Reconciliation of GAAP Net Sales to Net Sales Before Inter-company Eliminations
In evaluating our financial performance and operating trends, management considers information concerning our net sales before inter-company eliminations that are not prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States. Management uses these non-GAAP measures to evaluate its financial results, develop budgets and manage expenditures. The method we use 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. Net sales before inter-company eliminations has limitations as a supplemental measure, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. The following table represents a reconciliation of GAAP net sales to net sales before inter-company eliminations:
Year Ended | ||||||||||||
(Unaudited) | March 31, | March 31, | March 31, | |||||||||
(In thousands) | 2005 | 2004 | 2003 | |||||||||
Net sales | ||||||||||||
Distribution | $ | 556,927 | $ | 444,743 | $ | 353,316 | ||||||
Publishing | 95,777 | 46,177 | 14,715 | |||||||||
Net sales before inter-company eliminations | 652,704 | 490,920 | 368,031 | |||||||||
Inter-company eliminations | (56,441 | ) | (20,043 | ) | (11,215 | ) | ||||||
Net sales as reported | $ | 596,263 | $ | 470,877 | $ | 356,816 | ||||||
Results of Operations
The following table sets forth for the periods indicated, the percentage of net sales represented by certain items included in our “Consolidated Statements of Operations.”
Fiscal Years Ended March 31, | ||||||||||||
2005 | 2004 (Restated) | 2003 | ||||||||||
Net sales: | ||||||||||||
Distribution | 93.4 | % | 94.4 | % | 99.0 | % | ||||||
Publishing | 16.1 | 9.8 | 4.1 | |||||||||
Elimination of sales | (9.5 | ) | (4.2 | ) | (3.1 | ) | ||||||
Total net sales | 100.0 | 100.0 | 100.0 | |||||||||
Cost of sales — exclusive of depreciation and amortization | 84.7 | 87.7 | 87.3 | |||||||||
Gross profit | 15.3 | 12.3 | 12.7 | |||||||||
Selling and marketing | 3.7 | 3.6 | 3.9 | |||||||||
Distribution and warehousing | 1.5 | 1.3 | 1.5 | |||||||||
General and administrative | 7.5 | 5.4 | 5.6 | |||||||||
Depreciation and amortization | 0.6 | 0.4 | 0.6 | |||||||||
Total operating expenses | 13.3 | 10.7 | 11.6 | |||||||||
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Fiscal Years Ended March 31, | ||||||||||||
2005 | 2004 (Restated) | 2003 | ||||||||||
Income from operations | 2.0 | 1.6 | 1.1 | |||||||||
Interest expense | (0.1 | ) | (0.1 | ) | (0.1 | ) | ||||||
Interest income | 0.1 | 0.1 | — | |||||||||
Debt extinguishment | — | (0.2 | ) | — | ||||||||
Other income (expense), net | — | — | 0.2 | |||||||||
Tax benefit | 0.1 | 0.1 | — | |||||||||
Net income | 2.1 | % | 1.5 | % | 1.2 | % | ||||||
Certain information in this section contains forward-looking statements. Our actual results could differ materially from the statements contained in the forward-looking statements as a result of a number of factors, including risks and uncertainties inherent in our business, dependency upon key employees, the seasonality of our business, dependency upon significant customers and vendors, erosions in our gross profit margins, dependency upon bank borrowings, obtaining additional financing when required, dependency upon software developers and manufacturers, dependency upon recording artists, risks of returns and inventory obsolescence, effect of technology developments, effect of free music downloads, change in retailers methods of distribution and the possible volatility of our stock price. See “Business — Forward-Looking Statements / Important Risk Factors” in Item 1 of this Form 10-K.
Distribution Segment
The distribution segment distributes PC software, video games, accessories, major label music, and DVD video, as well as independent music.
Fiscal 2005 Results Compared With Fiscal 2004 (Restated)
Net Sales
Net sales for the distribution segment were $556.9 million (before intercompany eliminations) for fiscal 2005 compared to $444.7 million (before intercompany eliminations) for fiscal 2004. The 25.2% increase in net sales for fiscal 2005 was primarily due to increases in the software and video games product groups. Sales increased in the software product group to $399.3 million for fiscal 2005 compared to $311.9 million for fiscal 2004. The increase in net sales in this product group was primarily due to continued increases in a variety of software categories, including internet security utility products where sales remained strong due to continued demand. Major label music and DVD video increased to $62.8 in fiscal 2005 compared to $49.3 in fiscal 2004. The increase in net sales in this product group was primarily due to the addition of new customers and store openings of existing customers. Video games increased to $30.1 million in fiscal 2005 compared to $21.8 million in fiscal 2004 due to an increase in penetration of our existing customer base. Independent music increased to $64.7 million in fiscal 2005 compared to $61.7 million in fiscal 2004 due to additional growth from catalog product sales as well as sales resulting from new label relationships. Future sales increases will be dependent upon our ability to continue to add new, appealing products.
Gross Profit
Gross profit for the distribution segment was $59.8 million or 10.7% of net sales for fiscal 2005 compared to $48.7 million or 11.0% of net sales for fiscal 2004. The slight decrease in gross profit as a percent of net sales for fiscal 2005 was due to higher sales of products with lower gross margins, such as video games. We typically incur lower operating costs as a result of the “one-way” terms of sales related to the video games category. As sales in the video games product category increase, as a portion of our total net sales, we anticipate a continued reduction in our overall gross margin. We expect gross profit to fluctuate depending upon the make-up of product sold in each quarter. To the extent we continue to grow the distribution segment’s share of legacy products from large vendors at
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a rate faster than certain entertainment products from the smaller vendors, we would expect an overall margin decrease.
Operating Expenses
Total operating expenses for the distribution segment were $61.4 million or 11.0% of net sales for fiscal 2005 compared to $39.2 million or 8.8% of net sales for fiscal 2004.
Overall, certain operating expenses increased in fiscal 2005; particularly, information technology, freight and warehouse expenses related to the new warehouse and certain warehouse operating systems. The increased expense incurred in these areas was due to movement of product between warehouses, expedited freight to customers in connection with the transition to the new warehouse and information technology systems, warehouse labor costs related to additional movement of product, information technology programming labor and programming costs, and the building of racks. These operating expenses were approximately 0.6% higher during fiscal 2005 than during the prior fiscal year. We expect these costs to trend down as a percentage of net sales as we focus on creating overall efficiencies during fiscal 2006.
Selling and marketing expenses for the distribution segment were $14.4 million or 2.6% of net sales for fiscal 2005 compared to $10.4 million or 2.3% of net sales for fiscal 2004. The increase in selling and marketing expenses for fiscal 2005 is primarily a result of costs increasing in relation to increased net sales and higher freight costs incurred during the transition to the new warehouse.
Distribution and warehousing expenses for the distribution segment were $8.8 million or 1.6% of net sales for fiscal 2005 compared to $6.0 million or 1.3% of net sales for fiscal 2004. The increase in distribution and warehousing expense was primarily due to the new warehouse and implementation of the new warehouse operating system. We expect to generate overall efficiencies for fiscal 2006 as the new systems become further integrated into our operations.
General and administration expenses for the distribution segment consist principally of executive, accounting and administrative personnel and related expenses, including professional fees. General and administration expenses for the distribution segment were $36.4 million or 6.5% of net sales for fiscal 2005 compared to $21.4 million or 4.8% of net sales for fiscal 2004. The increase in general and administration expenses was primarily due to compensation expense of $5.8 million to acquire the remaining twenty percent ownership position in Encore, incentive-based deferred compensation expense of $2.5 million related to the CEO’s employment agreement, expense of $1.2 million related to Sarbanes-Oxley Act of 2002 compliance, and FUNimation transaction expenses of $578,000.
Depreciation and amortization for the distribution segment was $1.8 million for fiscal 2005 compared to $1.3 million for fiscal 2004. This increase is due to the new warehouse and warehouse systems.
We had a net operating loss for the distribution segment of $1.7 million for fiscal 2005 compared to net income of $9.6 million for fiscal 2004.
Fiscal 2004 (Restated) Results Compared With Fiscal 2003
Net Sales
Net sales for the distribution segment were $444.7 million (before intercompany eliminations) for fiscal 2004 compared to $353.3 million (before intercompany eliminations) for fiscal 2003. The 25.9% increase in net sales for fiscal 2004 was principally due to strong increases in sales across all of our distribution product groups. In particular, software sales continued to expand its market share presence across all categories. Internet security and anti-virus products remained strong in light of continued virus outbreaks. Sales increased in this product group to $311.9 million during fiscal 2004 from $260.6 million in fiscal 2003. Major label music, DVD video and video games grew to $71.1 million in fiscal 2004 from $35.1 million in fiscal 2003, due to the combinations of increased publisher and customer rosters and from strong releases throughout the year. Independent music grew to
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$61.7 million in fiscal 2004 from $57.6 million in fiscal 2003, due to its increased label and artist roster and its continued focus on catalog sales.
Gross Profit
Gross profit for the distribution segment was $48.7 million or 11.0% as a percent of net sales for fiscal 2004 compared to $39.7 million or 11.2% as a percent of net sales for fiscal 2003. The decrease in gross profit as a percent of net sales for fiscal 2004 was due to lower margins from the growth of our video game distribution segment. Video game distribution generally has a lower margin throughout the industry, however, video games are sold on a one-way basis with no returns permitted; therefore, the lower handling costs of the product offset some of the lower margins as it relates to overall profitability. In addition, we experienced lower margins with the continuation of the expansion of our market share in software categories such as business and productivity which generally have lower gross margins as much of the product is considered legacy product; however, these product categories tend to sell at higher dollar price points and generally have fewer returns. We experienced higher margins from sales of independent music in fiscal 2004 due to our continuing efforts to sign new labels at higher distribution rates.
Operating Expenses
Total operating expenses for the distribution segment were $39.2 million or 8.8% as a percent of net sales for fiscal 2004 compared to $35.7 million or 10.1% as a percent of net sales for fiscal 2003.
Selling and marketing expenses for the distribution segment were $10.4 million or 2.3% as a percent of net sales for fiscal 2004 compared to $11.1 million or 3.2% as a percent of net sales for fiscal 2003. The decrease for fiscal 2004 resulted from our improved efforts to reduce freight costs. Freight cost, as a percent of sales, decreased to 1.4% in fiscal 2004 compared to 1.8% in fiscal 2003. Additionally, we recorded an expense of $680,000 in fiscal 2003 in connection with the write-off of specialty product display sales racks.
Distribution and warehousing expenses for the distribution segment were $6.0 million or 1.3% as a percent of net sales for fiscal 2004 compared to $5.5 million or 1.6% as a percent of net sales for fiscal 2003. The decrease as a percentage of net sales resulted from overall improved efficiency of warehousing expenses such as “one-way” video game business, higher priced software categories such as business and productivity, and in part, efficiencies associated with a higher level of sales.
General and administrative expenses for the distribution segment consist principally of executive, accounting and administrative personnel and related expenses, including professional fees. General and administrative expenses for the distribution segment were $21.4 million or 4.8% as a percent of net sales for fiscal 2004 compared to $17.8 million or 5.0% as a percent of net sales for fiscal 2003. The increase in general and administrative expenses for fiscal 2004 resulted from incentive-based deferred compensation expense of $1.5 million related to the CEO’s employment agreement, a non cash charge of $705,000 for stock-based compensation relating to the vesting of option shares exercisable under option agreements for certain key employees, an increase in information technology expense of $476,000 which is allocated based on sales volume, and $891,000 for executive, accounting and administrative personnel required as our segment grows. The decrease as a percent of net sales for general and administrative expenses for fiscal 2004 was attributable to our continued increased efforts to control expenses as a percent of net sales.
Depreciation and amortization for the distribution segment remained flat at $1.3 million for fiscal 2004 and for fiscal 2003.
The net operating income for the distribution segment was $9.6 million for fiscal 2004 compared to $4.0 million for fiscal 2003.
Publishing Segment
The publishing segment includes Encore and BCI. We acquired the assets of BCI on November 3, 2003 and the assets of Encore on July 31, 2002.
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Fiscal 2005 Results Compared With Fiscal 2004 (Restated)
Net sales for the publishing segment were $95.8 million (before intercompany eliminations) for fiscal 2005 and $46.2 million (before intercompany eliminations) for fiscal 2004. Fiscal 2005 included a full year of Encore and BCI revenues, whereas fiscal 2004 only included a full year of Encore revenues and five months of BCI revenues. Additionally, on April 1, 2004 Encore signed a multi-year, multi-license agreement with Riverdeep Inc. The Riverdeep license significantly increased its revenue during fiscal 2005. A significant portion of the net sales increase was due to increased sales in our Encore business.
Gross profit for the publishing segment was $31.4 million or 32.7% as a percent of net sales for fiscal 2005 and $9.3 million or 20.1% as a percent of net sales for fiscal 2004. The lower gross profit in fiscal year 2004 was primarily due to an impairment charge for $5.6 million related to software development costs.
Operating expenses for the publishing segment were $17.3 million, or 18.1% of net sales, for fiscal 2005, including $7.1 million for sales and marketing expenses, $8.5 million for general and administration expenses and $1.7 million for depreciation and amortization expense. For fiscal 2004, operating expenses were $11.2 million, or 24.2% of net sales, including $6.5 million for sales and marketing expenses, $4.0 million for general and administration expenses and $673,000 for depreciation and amortization expense. The 6.1% of net sales decrease is a result of operating efficiencies.
The publishing segment had operating income of $14.0 million for fiscal 2005 and operating loss of $1.9 million for fiscal 2004. We expect this segment’s net sales and gross profit to increase during fiscal 2006 as a result of the inclusion of FUNimation’s operations for approximately 10 months.
Fiscal 2004 (Restated) Results Compared With Fiscal 2003
Net sales for the publishing segment were $46.2 million (before intercompany eliminations) for fiscal 2004 and $14.7 million (before intercompany eliminations) for fiscal 2003. The addition of BCI in November 2003 contributed $8.0 million of the growth. Fiscal 2004 included a full year of Encore revenues and approximately five months of BCI revenues, compared to fiscal 2003 that included only eight months of Encore revenues.
Gross profit for the publishing segment was $9.3 million or 20.1% as a percent of net sales for fiscal 2004 and $5.8 million or 39.4% as a percent of net sales for fiscal 2003. The gross margin decrease was primarily due to a $5.6 million impairment charge for the capitalized product development costs.
Operating expenses for the publishing segment were $11.2 million, or 24.2% of net sales for fiscal 2004, including $6.5 million for sales and marketing expenses, $4.0 million for general and administration expenses and $673,000 for depreciation and amortization expense. For fiscal 2003, operating expenses were $5.8 million or 39.1% of net sales, including $2.7 million for sales and marketing expenses, $2.3 million for general and administration expenses and $822,000 for depreciation and amortization expense, which included a charge of $501,000 for certain intangible assets that were deemed impaired subsequent to the acquisition of Encore. The expense increase in fiscal 2004 was due to the addition of BCI’s operations in November 2003.
The publishing segment had an operating loss of $1.9 million for fiscal 2004 and operating income of $41,000 for fiscal 2003.
Market Risk
The Company’s exposure to market risk is primarily due to the fluctuating interest rate associated with variable rate indebtedness. See Item 7a – Quantitative and Qualitative Disclosure About Market Risk.
Seasonality and Inflation
Quarterly operating results are affected by the seasonality of our business. Specifically, our third quarter (October 1–December 31) typically accounts for our largest quarterly revenue figures and a substantial portion of our earnings, although the percentage of net sales and earnings has declined over the past fiscal years. As a distributor of products ultimately sold to retailers, our business is affected by the pattern of seasonality common to other suppliers of retailers, particularly during the holiday selling season. Inflation is not expected to have a significant impact on our business, financial condition or results of operations since we can generally offset the impact of inflation through a combination of productivity gains and price increases.
8
Liquidity and Capital Resources
Cash Flow Analysis
Operating Activities
Cash used in operating activities for fiscal 2005 totaled $168,000. Cash provided from operating activities totaled $9.2 million and $1.3 million in fiscal 2004 and fiscal 2003, respectively.
The net cash used in fiscal 2005 mainly reflected our net earnings, combined with various non-cash charges, including depreciation and amortization of $3.9 million and executive, stock compensation expense of $8.6 million, deferred taxes of $4.3 million, and tax benefit from employee stock plans of $2.4 million, offset by our working capital demands. Accounts receivable increased by $13.6 million, reflecting the growth in sales for fiscal 2005. Inventories increased by $10.5 million, reflecting the higher inventories required by the Company’s increased sales activities. Prepaid expenses increased by $6.8 million, primarily reflecting royalty advances in the publishing business. Accounts payable increased $4.3 million, primarily as a result of increased inventory. Accrued expenses increased $5.6 million as a result of increased bonuses and royalties payable resulting from increased profitability and sales.
The net cash provided in fiscal 2004 reflected our net earnings, combined with various non-cash charges, including depreciation and amortization of $2.1 million, executive and stock compensation expense of $2.2 million and impairment of capitalized software development costs of $5.6 million, partially offset by our working capital demands. Accounts receivable increased by $11.3 million, inventories increased by $4.3 million, and prepaids increased by $4.2 million, which were offset by the increase in accounts payable of $13.0 million, which were a result of the Company’s increased profitability and sales.
The net cash provided in fiscal 2003 reflected our net earnings, combined with various non-cash charges, including depreciation and amortization of $2.2 million partially offset by our working capital demands. Accounts receivable increased by $10.4 million, inventories increased by $5.5 million, prepaid expenses and other assets increased by $5.9 million which were partially offset by the increase in accounts payable and accrued expenses of $16.4 million, which were a result of the Company’s increased profitability and sales.
Investing Activities
Cash flows used in investing activities totaled $5.8 million, $17.0 million and $9.2 million in fiscal 2005, 2004 and 2003, respectively.
Loans to related parties totaled $2.2 million and $278,000 and $711,000 for fiscal 2005, 2004 and 2003, respectively.
Acquisition of property and equipment totaled $9.3 million, $5.0 million and $1.0 million in fiscal 2005, 2004 and 2003 respectively. Purchases of 2005 fixed assets were offset by $6.4 million in proceeds from the sale and leaseback of our new building.
Purchase of intangible assets totaled $608,000 and $1.2 million for fiscal 2005 and 2004, respectively.
Acquisition of businesses totaled $10.5 million and $7.5 million for fiscal 2004 and 2003 respectively. In August, 2002 the Company completed the acquisition of the assets of Encore, an interactive publisher in the video game and PC CD-ROM markets. This transaction was made to enable the Company to more actively participate in the high growth video game industry and to extend our direct distribution relationships with large retailers. In November, 2003 the Company completed the acquisition of the assets of BCI, a provider of niche DVD/video and audio products. This transaction was made to enhance the line of products and services to the Company’s customers.
Financing Activities
Cash flows provided from financing activities totaled $7.0 million and $11.8 million for fiscal 2005 and 2004, respectively. Cash flows used in financing activities for fiscal 2003 totaled $536,000 for repayment of notes payable.
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The Company recorded proceeds from the exercise of common stock options and warrants of $8.2 million and $814,000 in fiscal 2005 and 2004, respectively and $11.7 million from the proceeds of the sale of common stock in fiscal 2004.
Capital Resources
In October 2001, we entered into a credit agreement with General Electric Capital Corporation as administrative agent, agent and lender, and GECC Capital Markets Group, Inc. as Lead Arranger, for a three year, $30.0 million revolving credit facility for use in connection with our working capital needs. In June 2004, this credit agreement was amended and restated to, among other things, provide for two senior secured revolving sub-facilities: a $10.0 million revolving acquisition sub-facility, and a $40.0 million revolving working capital sub-facility. The revolving working capital sub-facility allowed for borrowing up to $40.0 million, subject to a borrowing base requirement, and required that we maintain a minimum excess availability of at least $10.0 million. In addition to the provision for the two senior secured revolving sub-facilities, this credit agreement allowed for up to $10.0 million of the revolving working capital facility to be used for acquisitions, providing us with an aggregate revolving acquisition availability of up to $20.0 million, subject to a borrowing base requirement. The working capital revolving credit facility included borrowing capacity available for letters of credit and for borrowings on same-day notice, referred to as swing line loans. Under the amended and restated credit agreement, the maturity date of the revolving working capital facility was December 2007 and the maturity date of the revolving acquisition facility was June 2006. We were in compliance with the covenants related to our $40.0 million credit facility on March 31, 2005.
The credit agreement was amended and restated in its entirety on May 11, 2005 in order to provide the Company with funding to complete the FUNimation acquisition and was again amended and restated in its entirety on June 1, 2005. The credit agreement currently provides a six-year $115.0 million Term Loan B sub-facility, a $25.0 million five and one-half year Term Loan C sub-facility, and a five-year revolving sub-facility for up to $25.0 million. The entire $115.0 million of the Term Loan B sub-facility has been drawn since May 11, 2005 and the entire $25.0 million of the Term Loan C sub-facility was drawn at June 1, 2005. The revolving sub-facility of up to $25.0 million is available to the Company for its working capital and general corporate needs. The revolving sub-facility has no borrowing base requirement.
The loans under our senior credit facilities are variable rate obligations and are guaranteed by our subsidiaries and are secured by a first priority security interest in all of our assets and in all of the assets of our subsidiary companies, as well as the capital stock of our subsidiary companies.
Under the credit agreement we are required to meet certain financial and non-financial covenants. The financial covenants include a variety of financial metrics that are used to determine our overall financial stability and include limitations on our capital expenditures, a minimum ratio of EBITDA to fixed charges, and a minimum of indebtedness to EBITDA.
Liquidity
On May 11, 2005 we acquired 100% of the general and limited partnership interests of FUNimation Productions, Ltd. and The FUNimation Store, Ltd. (together,“FUNimation”). As consideration for the acquisition of FUNimation, the sellers of FUNimation received $100.4 million in cash, subject to post-closing adjustments not to exceed $5.0 million and excess cash as defined in the purchase agreement, and 1,827,486 shares of Navarre common stock. In addition, during the five-year period following the closing of the transaction, we may pay up to an additional $17.0 million in cash to the FUNimation sellers if they achieve certain agreed-upon financial targets relating to the FUNimation business. The FUNimation business is described in more detail at “Business-FUNimation Business.”
During the last fiscal quarter of fiscal year 2005 we made a strategic decision to increase our inventory levels of certain products that we sell to service a new major mass merchant retailer customer. We determined that it was in our best interest to take extra precautions that would allow us to provide a high level of service to this important new customer during the first holiday season, which occurs during our fiscal 2005 third quarter. As a result, a higher than normal level of inventory was purchased and maintained in order to ensure that we had the capacity to quickly fill large orders of these products during the holiday sales season. Additionally, as payment terms with the vendors that provide certain of these products require us to pay for our inventory purchases more quickly than we were able to collect our accounts receivable in connection with a sale of these products to our customers, a significant amount of cash was utilized in these purchases. Now that we have greater experience with this customer’s buying patterns, we do not currently anticipate that it will be necessary to maintain an increased inventory level during future fiscal third quarter periods to such a significant degree.
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From time to time we are required to invest a significant amount of cash in our publishing business in order to license content from third parties and in our distribution business in order to sign exclusive distribution agreements. Typically, these amounts are paid to third parties in connection with the signing of the applicable agreement and are recouped from the proceeds that we receive from the sale of products that result from these agreements. During the third quarter of the fiscal year 2005 we invested approximately $5.0 million in connection with the licensing of new content in our publishing business.
In our publishing business we must estimate the likely demand for the products that we sell in order to ensure that we have enough of these products ready for shipment to our customers. During the third and fourth quarters of fiscal year 2005 we invested cash into our inventory in the publishing business in order to ensure that we had sufficient products to meet expected demand for the foreseeable future.
The cumulative effect of these events was that, at the end of our fiscal 2005 third quarter, we had significantly higher inventory levels, reduced cash, and a significant amount of borrowings under our working capital credit facility. Through the course of the fiscal 2005 fourth quarter these increased inventory levels were reduced as a result of the sale of these products and by returning certain inventories. The result at the end of the fiscal 2005 fourth quarter was that we had reduced our inventory and accounts receivable by $21.6 million and $24.0 million, respectively. Cash at March 31, 2005 was $15.5 million and we had no borrowings under our credit agreement.
While this strategy affected our liquidity and capital resources during the later portions of the 2005 fiscal year, we believe that certain recent events have considerably enhanced our outlook in these areas. Specifically, the acquisition of FUNimation is currently expected to provide positive cash flow during the approximate ten months that its operations will be included in fiscal 2006. In addition, our historical business is expected to continue to generate positive cash flow. Furthermore, the recent changes to our credit agreement with GE Commercial Finance have provided us with approximately $35.0 million of additional cash as well as the ability to make borrowings under a $25.0 million working capital revolving credit facility without reference to a borrowing base availability requirement.
We currently believe funds generated from the expected results of operations and available cash and cash equivalents and borrowings under our existing credit facility will be sufficient to satisfy our working capital requirements and to finance expansion plans and strategic initiatives for this fiscal year and otherwise in the long-term absent significant acquisitions. We have stated our plans to grow through acquisitions; however, such opportunities will likely require the use of additional equity or debt capital, some combination thereof, or other financing.
Contractual Obligations
The following table presents information regarding contractual obligations that exist as of March 31, 2005 by fiscal year (in thousands).
Total | Less than 1 Year | 1 – 3 Years | 4 – 5 Years | More than 5 Years | ||||||||||||||||
Operating leases | $ | 22,988 | $ | 2,234 | $ | 3,916 | $ | 3,825 | $ | 13,013 | ||||||||||
Capital leases | 430 | 129 | 229 | 72 | — | |||||||||||||||
License and distribution agreement | 7,287 | 7,287 | — | — | — | |||||||||||||||
Total | $ | 30,705 | $ | 9,650 | $ | 4,145 | $ | 3,897 | $ | 13,013 | ||||||||||
PART IV
Item 15. Exhibits and Financial Statements Schedules
(a) | Documents filed as part of this report - |
(1) | Financial Statements. Our following consolidated financial statements and the Reports of Independent Registered Public Accounting Firms thereon are set forth at the end of this document: |
(i) | Reports of Independent Registered Public Accounting Firms. | |||
(ii) | Consolidated Balance Sheets as of March 31, 2005 and 2004 (Restated). | |||
(iii) | Consolidated Statements of Operations for the years ended March 31, 2005, 2004 (Restated) and 2003. | |||
(iv) | Consolidated Statements of Shareholders’ Equity for the years ended March 31, 2005, 2004 (Restated) and 2003. |
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(v) | Consolidated Statements of Cash Flows for the years ended March 31, 2005, 2004 (Restated) and 2003. | |||
(vi) | Notes to Consolidated Financial Statements |
(2) | Financial Statement Schedules |
(i) | Schedule II – Valuation and Qualifying Accounts and Reserves |
Schedules 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. |
(3) | Exhibits |
Item No. | Description | |
2.1 | Asset Purchase Agreement dated November 3, 2003 between BCI Eclipse Company, LLC and the Company (incorporated by reference to Exhibit 2.1 to the Company’s Form 10-Q for the quarter ended September 30, 2003 (File No. 0-22982)). | |
3.1 | Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2000 (File No. 0-22982)). | |
3.2 | Bylaws of the Company (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-3 (File No. 333-111733)). | |
3.3 | Certificate of Rights and Preferences of Series B Convertible Preferred Stock (incorporated by reference to Exhibit 2 to the Company’s Form 8-K dated August 20, 1999 (File No. 0-22982)). | |
3.4 | Form of Warrant Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K dated December 16, 2003 (File No. 0-22982)). | |
10.1 * | Employment Agreement dated November 1, 2001 between the Company and Eric H. Paulson (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended December 31, 2001 (File No. 0-22982)). | |
10.2 * | Amendment to Employment Agreement between the Company and Eric H. Paulson (incorporated by reference to Exhibit 10.1.1 to the Company’s Form 10-Q for the quarter ended December 31, 2003 (File No. 0-22982)). | |
10.3 * | Employment Agreement dated January 2, 2002 between the Company and Charles E. Cheney (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2002 (File No. 0-22982)). | |
10.4 * | Employment Agreement between Encore Software, Inc. and Michael Bell (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2003 (File No. 0-22982)). | |
10.5 * | Employment Agreement dated November 5, 2003, between BCI Eclipse Company, LLC and Edward D. Goetz (incorporated by reference to Exhibit 10.16 to the Company’s Form 10-Q for the quarter ended September 30, 2003 (File No. 0-22982)). |
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10.6 * | 1992 Stock Option Plan, amended and restated (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2002 (File No. 0-22982)). | |
10.7 * | 2003 Amendment to the Company’s 1992 Stock Option Plan (incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (File No. 333-109056)). | |
10.8 * | Form of Individual Stock Option Agreement under 1992 Stock Option Plan (incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1 (No. 333-68392)). | |
10.9 * | Form of Termination Agreement for certain of the Company’s Executives (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended December 31, 2001 (File No. 0-22982)). | |
10.10 | Lease dated March 12, 1998 between the Company and Cambridge Apartments, Inc. with respect to the corporate headquarters in New Hope, MN (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the year ended March 31, 1999 (File No. 0-22982)). | |
10.11 | Amendment No. 1 to Lease Agreement between the Company and Cambridge Apartments, Inc. dated April 1, 1998 (incorporated by reference to Exhibit 10.9.1 to the Company’s Form 10-Q for the quarter ended June 30, 2003 (File No. 0-22982)). | |
10.12 | Amendment No. 2 to Lease Agreement between the Company and Cambridge Apartments, Inc. dated July 14, 2003 (incorporated by reference to Exhibit 10.9.2 to the Company’s Form 10-Q for the quarter ended June 30, 2003 (File No. 0-22982)). | |
10.13 | Lease dated May 1, 1999 between the Company and Sunlite III, LLP with respect to a second facility in Brooklyn Park, MN (incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year ended March 31, 1999 (File No. 0-22982)). | |
10.14 | Amendment Nos. 1, 2 and 3 to Lease Agreement (incorporated by reference to Exhibit 10.10.1 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2003 (File No. 0-22982)). | |
10.15 | Lease dated December 17, 1999 between Encore and EastGroup Properties L.P., with respect to a third facility in Gardena, California (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2003 (File No. 0-22982)). | |
10.16 | First Amendment to Lease dated June 27, 2002 between Encore and Eastgroup Properties L.P. (incorporated by reference to Exhibit 10.11.1 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2003 (File No. 0-22982)). |
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10.17 | Credit Agreement dated October 3, 2001 between General Electric Capital Corporation and the Company (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended September 30, 2001 (File No. 0-22982)). | |
10.18 | Amendment No. 1 and Limited Waiver with Respect to Credit Agreement dated March 4, 2002 (incorporated by reference to Exhibit 10.8.1 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2002 (File No. 0-22982)). | |
10.19 | Amendment No. 2 to Credit Agreement dated August 1, 2002 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended September 30, 2002 (File No. 0-22982)). | |
10.20 | Amendment No. 3 to Credit Agreement dated March 30, 2003 (incorporated by reference to Exhibit 10.12.3 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2003 (File No. 0-22982)). | |
10.21 | Amendment No. 4 to Credit Agreement dated June 24, 2003 (incorporated by reference to Exhibit 10.12.4 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2003 (File No. 0-22982)). | |
10.22 | Amendment No. 5 to Credit Agreement dated October 23, 2003 (incorporated by reference to Exhibit 10.12.5 to the Company’s Form 10-Q for the quarter ended September 30, 2003 (File No. 0-22982)). | |
10.23 | Amendment No. 6 to Credit Agreement dated November 5, 2003 (incorporated by reference to Exhibit 10.12.6 to the Company’s Form 10-Q for the quarter ended September 30, 2003 (File No. 0-22982)). | |
10.24 | Separation Agreement dated as of March 1, 1999 between the Company and NetRadio Corporation (incorporated by reference to Exhibit 10.16 to NetRadio Corporation’s Form S-1/A Registration Statement (File No. 333-73261)). | |
10.25 | Term Note dated October 14, 1999, between the Company and NetRadio Corporation (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2000 (File No. 0-22982)). | |
10.26 | Amendment No. 1 to Term Note dated March 26, 2001, between the Company and NetRadio Corporation (incorporated by reference to Exhibit 10.1 to NetRadio Corporation’s Form 10-Q for the quarter ended March 31, 2001 (File No. 0-27575)). | |
10.27 | Amendment No. 2 to Term Note dated March 30, 2001, between the Company and NetRadio Corporation (incorporated by reference to Exhibit 10.2 to NetRadio Corporation’s Form 10-Q for the quarter ended March 31, 2001 (File No. 0-27575)). |
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10.28 | Form of Warrant dated May 1, 1998 issued to investors in connection with the Company’s May 1, 1998 private placement of Class A Convertible Preferred Stock (incorporated by reference to Exhibit 4 to the Company’s Form 8-K dated May 1, 1998 (File No. 0-22982)). | |
10.29 | Amended and Restated Asset Purchase Agreement effective as of July 10, 2002 by and between the Company and Encore Software, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated August 14, 2002 (File No. 0-22982)). | |
10.30 | Amendment No. 1 to Asset Purchase Agreement effective as of July 31, 2002, by and among the Company, Encore Software, Inc. and Encore Acquisition Corporation (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K dated August 14, 2002 (File No. 0-22982)). | |
10.31 | Agreement of Reciprocal Easements, Covenants, Conditions and Restrictions dated June 16, 2003 (incorporated by reference to Exhibit 10.9.3 to the Company’s Form 10-Q for the quarter ended June 30, 2003 (File No. 0-22982)). | |
10.32 | Incentive Stock Option Agreement dated September 6, 2002 between Cary Deacon and the Company (incorporated by reference to Exhibit 10.17 to the Company’s Form 10-Q for the quarter ended September 30, 2003 (File No. 0-22982)). | |
10.33 | Addendum to Incentive Stock Option Agreement dated November 13, 2003 (incorporated by reference to Exhibit 10.17.1 to the Company’s Form 10-Q for the quarter ended September 30, 2003 (File No. 0-22982)). | |
10.34 | Form of Securities Purchase Agreement dated as of December 15, 2003 among the Corporation and the various purchasers (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated December 16, 2003 (File No. 0-22982)). | |
10.35 | Form of Registration Rights Agreement dated as of December 15, 2003 among the Corporation and the various purchasers (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K dated December 16, 2003 (File No. 0-22982)). | |
10.36 | Form of Separation Agreement with Charles E. Cheney dated April 30, 2004 (incorporated by reference to Exhibit 10.41 to the Company’s Form 10-K for the year ended March 31, 2004 (File No. 0-22982)). | |
10.37 | Form of Assignment of Lease between BCI Eclipse LLC and BCI Eclipse Company, LLC dated November 3, 2003 (incorporated by reference to Exhibit 10.42 to the Company’s Form 10-K for the year ended March 31, 2004 (File No. 0-22982)). |
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10.38 | Form of Amendment No. 7 to Credit Agreement dated January 26, 2004 (incorporated by reference to Exhibit 10.43 to the Company’s Form 10-K for the year ended March 31, 2004 (File No. 0-22982)). | |
10.39 | Form of Amendment No. 8 to Credit Agreement dated March 9, 2004 (incorporated by reference to Exhibit 10.44 to the Company’s Form 10-K for the year ended March 31, 2004 (File No. 0-22982)). | |
10.40 | Form of Amendment No. 9 to Credit Agreement dated March 30, 2004 (incorporated by reference to Exhibit 10.45 to the Company’s Form 10-K for the year ended March 31, 2004 (File No. 0-22982)). | |
10.41 | Form of Amended and Restated Credit Agreement with General Electric Capital Corporation dated June 18, 2004 (incorporated by reference to Exhibit 10.46 to the Company’s Form 10-K for the year ended March 31, 2004 (File No. 0-22982)). | |
10.42 | Form of Lease Agreement between the Company and NL Ventures IV New Hope, L.P. dated May 27, 2004 (incorporated by reference to Exhibit 10.47 to the Company’s Form 10-K for the year ended March 31, 2004 (File No. 0-22982)). | |
10.43 | Form of Third Amendment to Office/Warehouse Lease between Cambridge Apartments, Inc. and the Company dated February 23, 2004 (incorporated by reference to Exhibit 10.48 to the Company’s Form 10-K for the year ended March 31, 2004 (File No. 0-22982)). | |
10.44 | Form of Fourth Amendment to Office/Warehouse Lease between Cambridge Apartments, Inc. and the Company dated June 2004 (incorporated by reference to Exhibit 10.49 to the Company’s Form 10-K for the year ended March 31, 2004 (File No. 0-22982)). | |
10.45 | Amendment No. 2 to Lease Agreement between Airport One Limited Partnership and the Company dated March 21, 2004 (incorporated by reference to Exhibit 10.50 to the Company’s Form 10-K for the year ended March 31, 2004 (File No. 0-22982)). | |
10.46 | Addendum to Lease Agreement between Cambridge Apartments, Inc. and the Company dated May 27, 2004 (incorporated by reference to Exhibit 10.51 to the Company’s Form 10-K for the year ended March 31, 2004 (File No. 0-22982)). | |
10.47 | Form of BCI Eclipse Lease Agreement effective October 1, 1999 (incorporated by reference to Exhibit 10.52 to the Company’s Form 10-K for the year ended March 31, 2004 (File No. 0-22982)). | |
10.48 | First Amendment to BCI Eclipse Lease Agreement made as of January 5, 2000 (incorporated by reference to Exhibit 10.53 to the Company’s Form 10-K for the year ended March 31, 2004 (File No. 0-22982)). |
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10.49 | Amended and Restated Credit Agreement dated June 18, 2004 between the Company and General Electric Capital Corporation (incorporated by reference to Exhibit 10.54 to the Company’s Form 10-Q for the quarter ended September 30, 2004 (File No. 0-22982)). | |
10.50 | Amendment No. 1 and Limited Waiver with Respect to Amended and Restated Credit Agreement dated August 25, 2004 (incorporated by reference to Exhibit 10.55 to the Company’s Form 10-Q for the quarter ended September 30, 2004 (File No. 0-22982)). | |
10.51 | Amendment No. 2 and Limited Waiver with Respect to Amended and Restated Credit Agreement dated October 18, 2004 (incorporated by reference to Exhibit 10.56 to the Company’s Form 10-Q for the quarter ended September 30, 2004 (File No. 0-22982)). | |
10.52 | Lease dated October 8, 2004, between Encore Software, Inc. and Kilroy Realty, L.P., with respect to a a office facility in El Segundo, California (incorporated by reference to Exhibit 10.57 to the Company’s Form 10-Q for the quarter ended September 30, 2004 (File No. 0-22982)). | |
10.53 | Form of License and Distribution Agreement (Manufacturing Rights) (2004-2005) between Riverdeep Inc. and Encore Software, Inc. dated as of March 29, 2004 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q/A for the quarter ended September 30, 2004 (File No. 0-22982)). | |
10.54 | Form of License and Distribution Agreement (Manufacturing Rights) (2005-2007) between Riverdeep Inc. and Encore Software, Inc. dated as of March 29, 2004 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q/A for the quarter ended September 30, 2004 (File No. 0-22982)). | |
10.55 | Form of Addendum #1 to Licensing and Distribution Agreements (2004-2005 and 2005-2007) between Riverdeep, Inc. and Encore Software, Inc. dated as of April 13, 2004 (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q/A for the quarter ended September 30, 2004 (File No. 0-22982)). | |
10.56 | Form of Addendum #2 to Licensing and Distribution agreements (2004-2005 and 2005-2007) between Riverdeep, Inc. and Encore Software, Inc. dated October 2004 (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q/A for the quarter ended September 30, 2004 (File No. 0-22982)). | |
10.57 * | Navarre Corporation 2004 Stock Plan (incorporated by reference to Exhibit D to the Company’s Proxy Statement filed July 27, 2004 (File No. 0-22982)). | |
10.58*# | Form of 2004 Stock Plan Incentive Stock Option Agreement. | |
10.59*# | Form of 2004 Stock Plan Non-Employee Director Stock Option Agreement. |
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10.60 | Form of Senior Debt Indenture (incorporated by reference to Exhibit 4(a) to the Company’s Registration Statement on Form S-3 filed September 28, 2004 (File No. 333-119260)). | |
10.61 | Form of Senior Debt Indenture (incorporated by reference to Exhibit 4(c) to the Company’s Registration Statement on Form S-3 filed September 28, 2004 (File No. 333-119260)). | |
10.62 | FUNimation Partnership Interest Purchase Agreement, dated January 10, 2005 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed January 14, 2005 (File No. 0-22982)). | |
10.63 | Form of Assignment and Assumption Agreement (incorporated by reference to Exhibit 10.1(a) to the Company’s Form 8-K filed January 14, 2005 (File No. 0-22982)). | |
10.64* | Form of Gen Fukanaga Employment Agreement (incorporated by reference to Exhibit 10.1(b) to the Company’s Form 8-K filed January 14, 2005 (File No. 0-22982)). | |
10.65 | Form of Escrow Agreement (incorporated by reference to Exhibit 10.1(c) to the Company’s Form 8-K filed January 14, 2005 (File No. 0-22982)). | |
10.66 | Form of Non-Competition Agreement (incorporated by reference to Exhibit 10.1(d) to the Company’s Form 8-K filed January 14, 2005 (File No. 0-22982)). | |
10.67 | Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.1(e) to the Company’s Form 8-K filed January 14, 2005 (File No. 0-22982)). | |
10.68 | Form of Release (incorporated by reference to Exhibit 10.1(f) to the Company’s Form 8-K filed January 14, 2005 (File No. 0-22982)). | |
10.69 | Limited Waiver and Third Amendment to Amended and Restated Credit Agreement, filed January 14, 2005 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed January 14, 2005 (File No. 0-22982)). | |
10.70 | Amendment No. 3 to Lease Agreement between Airport One Limited Partnership and the Company dated November 23, 2004 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended December 31, 2005 (File No. 0-22982)). | |
10.71 | Form of Addendum #3 to Licensing and Distribution Agreements (2004-2005 and 2005-2007) between Riverdeep, Inc. and Encore Software, Inc. dated November 2004 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended December 31, 2005 (File No. 0-22982)). |
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10.72 | Amendment No. 1 to Lease Agreement between Encore Software, Inc. and Kilroy Realty, L.P. dated December 29, 2004 (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended December 31, 2005 (File No. 0-22982)). | |
10.73 | Limited Waiver With Respect To Amended and Restated Credit Agreement dated March 15, 2005 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed March 17, 2005 (File No. 0-22982)). | |
10.74 | Stock Purchase Agreement between the Company and Michael Bell dated March 14, 2005 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed March 17, 2005 (File No. 0-22982)). | |
10.75 | Registration Rights Agreement between the Company and Michael Bell dated March 14, 2005 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed March 17, 2005 (File No. 0-22982)). | |
10.76 | Amendment to Stock Purchase Agreement between the Company and Michael Bell dated March 31, 2005 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed April 14, 2005 (File No. 0-22982)). | |
10.77 | Amendment to Registration Rights Agreement between the Company and Michael Bell dated March 31, 2005 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed April 14, 2005 (File No. 0-22982)). | |
10.78 | Limited Waiver with Respect to Amended and Restated General Electric Capital Corporation Credit Agreement dated March 31, 2005 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed April 14, 2005 (File No. 0-22982)). | |
10.79 | Pledge Agreement between the Company and General Electric Capital Corporation related to Encore shares dated March 31, 2005 (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed April 14, 2005 (File No. 0-22982)). | |
10.80 | Amendment No. 1 to Partnership Interest Purchase Agreement dated May 11, 2005 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed May 17, 2005 (File No. 0-22982)). | |
10.81 | Second Amended and Restated Credit Agreement dated as of May 11, 2005 between the Company and General Electric Capital Corporation (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed May 17, 2005 (File No. 0-22982)). | |
10.82 | Form of Third Amended and Restated Credit Agreement with Lenders and General Electric Capital Corporation dated June 1, 2005 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed June 3, 2005 (File No. 0-22982)). |
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10.83 | Form of Limited Waiver to General Electric Capital Corporation Second Amended and Restated Credit Agreement dated June 1, 2005 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed June 3, 2005 (File No. 0-22982)). | |
10.84# | Office Lease dated August 1, 2004 between Cocanaugher Asset #1, Ltd. and FUNimation Productions, Ltd. | |
10.85# | Letter dated June 14, 2005 regarding Company’s policy to use straight-line method of depreciation from Grant Thorton LLP. | |
14.1 | The Company’s Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 to the Company’s Form 10-K for the year ended March 31, 2004 (File No. 0-22982)). | |
21.1# | Subsidiaries of the Registrant. | |
23.1# | Consent of Independent Registered Public Accounting Firm – Grant Thornton LLP | |
23.2# | Consent of Independent Registered Public Accounting Firm — Ernst & Young LLP | |
24.1# | Power of Attorney, contained on signature page | |
31.01Ö | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act) | |
31.02Ö | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act) | |
32.01Ö | Certifications of the Chief Executive Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) | |
32.02Ö | Certifications of the Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) |
* Indicates management contract or compensatory plan or agreement.
# previously filed
Öfiled herewith
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SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized.
Navarre Corporation (Registrant) | ||||
June 17, 2005 | By /s/ Eric H. Paulson | |||
Eric H. Paulson | ||||
Chairman of the Board, President and Chief Executive Officer | ||||
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