UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period June 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from_______________to________________
Commission File Number 0-22982
NAVARRE CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1704319
(State or other jurisdiction of (IRS Employer
incorporation or organization) 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
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. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, No Par Value - 25,655,004 shares as of July 31, 2000
NAVARRE CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -
June 30, 2000 and March 31, 2000
Consolidated Statements of Operations -
Three months ended June 30, 2000 and 1999
Consolidated Statements of Cash Flows - Three months
ended June 30, 2000 and 1999
Notes to Consolidated Financial Statements - June 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NAVARRE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, 2000 MARCH 31, 2000
---------------------------------
(UNAUDITED) (NOTE)
ASSETS
Current assets:
Cash $ 16,264 $ 15,739
Accounts receivable, less allowance for doubtful accounts and sales
returns of $4,028 and $4,349, respectively 42,859 56,483
Inventories 26,575 22,421
Note receivable, related parties 411 375
Prepaid expenses and other current assets 481 216
---------------------------------
Total current assets $ 86,590 $ 95,234
NetRadio note receivable 9,597 9,597
Equity investment in NetRadio -- 1,941
Property and equipment, net of accumulated depreciation of $4,080 and
$4,473, respectively 2,857 2,469
Other assets:
Goodwill 382 391
Other assets 93 79
---------------------------------
Total assets $ 99,519 $ 109,711
=================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ -- $ --
Accounts payable 58,516 66,718
Accrued expenses 1,637 1,570
---------------------------------
Total current liabilities $ 60,153 68,288
Shareholders' equity:
Preferred stock, no par value:
Authorized shares - 10,000,000,
Issued and outstanding Class B convertible preferred shares - 13,610
and 34,000, respectively 8,010 8,010
Common stock, no par value:
Authorized shares - 100,000,000,
Issued and outstanding shares-25,649,492 and 23,534,435, respectively 91,554 91,501
Retained deficit (60,171) (58,051)
Unearned compensation (27) (37)
---------------------------------
Total shareholders' equity 39,366 41,423
---------------------------------
Total liabilities and shareholders' equity $ 99,519 $ 109,711
=================================
NOTE: THE BALANCE SHEET AT MARCH 31, 2000 HAS BEEN DERIVED FROM THE AUDITED
FINANCIAL STATEMENTS AT THAT DATE BUT DOES NOT INCLUDE ALL OF THE INFORMATION
AND FOOTNOTES REQUIRED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR COMPLETE
FINANCIAL STATEMENTS.
3
NAVARRE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
2000 1999
---------------------------------
Net sales $ 55,166 $ 57,751
Cost of sales 47,518 50,946
---------------------------------
Gross profit 7,648 6,805
Operating expenses:
Selling and promotion 1,933 2,331
Distribution and warehousing 1,624 1,186
General and administration 4,604 5,399
Depreciation and amortization 197 437
---------------------------------
8,358 9,353
---------------------------------
Loss from operations (710) (2,548)
Other expense:
Interest expense (58) (199)
Other income 588 143
---------------------------------
Loss before equity in loss of NetRadio Corporation (180) (2,604)
Equity in loss of NetRadio Corporation (1,941) --
---------------------------------
Loss before income taxes (2,121) (2,604)
Income tax benefit -- --
---------------------------------
Net loss attributable to common shareholders $ (2,121) $ (2,604)
=================================
Loss per common share:
Basic and diluted $ (.09) $ (.11)
=================================
Weighted average common and
common equivalent shares outstanding
Basic and diluted 24,580 23,371
=================================
4
NAVARRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
2000 1999
---------------------------------
OPERATING ACTIVITIES
Net loss $ (2,121) $ (2,604)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization of intangible assets 197 437
Amortization on unearned compensation 10 24
Equity in loss of NetRadio Corporation 1,941 --
Employee stock compensation 53 --
Changes in operating assets and liabilities:
Accounts receivable 13,624 (2,563)
Inventories (4,154) (1,040)
Prepaid expenses and other assets (243) (1,669)
Accounts payable and accrued expenses (8,135) 2,572
---------------------------------
Net cash provided by (used in) operating activities 1,172 (4,843)
INVESTING ACTIVITIES
Note receivable, related parties (36) 29
Purchase of equipment and leasehold improvements (611) (439)
---------------------------------
Net cash used in investing activities (647) (410)
FINANCING ACTIVITIES
Payment on long-term debt -- (40)
Proceeds from notes payable, bank -- 54,040
Payment on notes payable, bank -- (49,286)
Exercise of common stock options -- 478
---------------------------------
Net cash provided by financing activities -- 5,192
---------------------------------
Net increase in cash 525 (61)
Cash at beginning of period 15,739 92
---------------------------------
Cash at end of period $ 16,264 $ 31
=================================
5
NAVARRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Navarre Corporation and its
wholly owned subsidiary, eSplice, Inc., have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. All intercompany
accounts and transactions have been eliminated. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Because of the seasonal nature of
the Company's business, the operating results for the three month period ended
June 30, 2000 are not necessarily indicative of the results that may be expected
for the year ending March 31, 2001. For further information, refer to the
financial statements and footnotes thereto included in Navarre Corporation's
Annual Report on Form 10-K for the year ended March 31, 2000. Certain balances
at June 30, 1999 have been reclassified to conform to the June 30, 2000
presentation.
NOTE B - BUSINESS SEGMENTS
Financial Information by reportable business segment is included in the
following summary:
(in thousands)
QUARTERS ENDED
JUNE 30, 2000 JUNE 30, 1999
---------------------------------
NET SALES
Home Entertainment Products $ 55,164 $ 57,531
eSplice 2 --
NetRadio -- 220
---------------------------------
CONSOLIDATED $ 55,166 $ 57,751
OPERATING LOSS
Home Entertainment Products (96) (393)
eSplice (614) --
NetRadio -- (2,155)
---------------------------------
CONSOLIDATED LOSS (710) (2,548)
Net Interest Expense (58) (199)
Other Income 588 143
Equity loss from investment in NetRadio (1,941) --
---------------------------------
LOSS BEFORE INCOME TAXES $ (2,121) $ (2,604)
6
NOTE C - NET EARNINGS (LOSS) PER SHARE
For the periods ending June 30, 2000 and 1999, preferred stock, preferred stock
warrants and employee stock options are not included in the computation of the
dilutive, weighted-average shares calculation because they are anti-dilutive.
The following table sets forth the computation of basic and diluted earnings per
share:
(In thousands, except per share data)
THREE MONTHS ENDED JUNE 30,
2000 1999
-----------------------------
Numerator:
Net loss $ (2,121) $ (2,604)
-----------------------------
Adjusted net loss applicable to common stock $ (2,121) $ (2,604)
Denominator:
Denominator for basic earnings per
share--weighted-average shares 24,580 23,371
Denominator for diluted earnings
per share--adjusted
weighted-average shares 24,580 23,371
-----------------------------
Basic and dilutive loss per share $ (.09) $ (.11)
=============================
NOTE D - ISSUANCE OF CLASS B CONVERTIBLE PREFERRED STOCK
On August 20, 1999, the Company announced that it had entered into a
subscription agreement with Fletcher International Limited ("Fletcher") for the
issuance of up to 150,000 shares of Navarre's Class B Convertible Preferred
Stock ("Class B Preferred Stock") for an aggregate purchase price of up to $37.5
million (the "Subscription Agreement"). The Class B Preferred Stock may be
issued in three principal tranches. On August 20, 1999, Navarre issued the first
tranche, consisting of 34,000 shares of Class B Preferred Stock and a three-year
warrant to purchase up to 16,000 shares of Class B Preferred Stock. Fletcher
paid a purchase price of $8.5 million, or $250 per share of Class B Preferred
Stock, and will pay an additional $4.0 million, or $250 per share of Class B
Preferred Stock, if Fletcher exercises the warrant in its entirety. On May 17,
2000, Fletcher International Limited converted 20,390 shares of Class B
Preferred Stock to 2,115,057 shares of common stock.
NOTE E - NETRADIO CORPORATION
On October 19, 1999, NetRadio Corporation, the Company's formally majority owned
subsidiary, closed on an initial public offering of 3,200,000 shares of its
common stock at a price of $11.00 per share. As a result of the completion of
the NetRadio initial public offering and the subsequent exercise of options by
NetRadio option holders, Navarre's ownership of NetRadio decreased to less than
fifty percent effective November 5, 1999. Accordingly, Navarre has not
consolidated NetRadio's results for periods after November 5, 1999 in Navarre
financial statements, but has reported its interest in NetRadio on the equity
method.
In connection with the NetRadio initial public offering, Navarre and NetRadio
entered into a separation agreement in March 1999 under which Navarre agreed to
contribute to the capital of NetRadio $5,234,840 of principal indebtedness owed
by NetRadio to Navarre as of December 31, 1998. In connection with the execution
of the separation agreement NetRadio and Navarre agreed to enter into a Multiple
Advance Note. Under the separation agreement, Navarre and NetRadio agreed at
closing of the initial public offering that a Term Note would replace this
Multiple Advance Note. Under the Term Note, NetRadio agreed to repay to Navarre
all amounts advanced to NetRadio beginning January 1, 1999, plus accrued
interest on $5,234,840 of principal indebtedness incurred through December 31,
1998. The Term Note bears interest at prime plus one
7
half-percentage point. Interest payments are due monthly. The principal balance
of the Term Note, approximately $9.6 million, is due on November 14, 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Navarre Corporation ("Navarre" or the "Company") is a major distributor of
music, software, interactive CD-ROM products and DVD videos. Navarre sells to
major music and software retailers, wholesalers and rackjobbers. In addition,
through its wholly owned subsidiary, eSplice, Inc., a development stage company,
Navarre is engaged in the development of a platform to aggregate and distribute
digital content including music and software utilizing industry-leading
solutions for encoding, encryption, digital rights management and playback.
Navarre's operations are classified into two business segments for fiscal 2001,
based upon products and services provided. They are home entertainment products
and eSplice, Inc. The home entertainment products segment distributes two
principal products, computer software products and music products.
During the fiscal year ended March 31, 2000, Navarre was the majority
shareholder; of NetRadio Corporation, a leading broadcaster of originally
programmed audio entertainment over the Internet through its Web site
www.netradio.com. On October 19, 1999, NetRadio closed on an initial public
offering. Navarre's ownership of NetRadio subsequently decreased to less than
fifty percent. Accordingly, Navarre has not consolidated NetRadio's results for
periods after November 5, 1999 in Navarre financial statements, but has reported
its interest in NetRadio using the equity method.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of net
sales represented by certain items included in the Company's "Consolidated
Statements of Operations."
THREE MONTHS ENDED JUNE 30
2000 1999
--------------------------------
Net sales:
Computer software 65.5% 64.4%
Music 34.5 35.2
--------------------------------
Home entertainment products 100.0 99.6
eSplice, Inc. -- --
NetRadio Corporation -- 0.4
--------------------------------
Total net sales 100.0 100.0
Cost of sales 86.1 88.2
--------------------------------
Gross profit 13.9 11.8
Selling and promotion 3.5 4.0
Distribution and warehousing 2.9 2.1
General and administration 8.3 9.3
Depreciation and amortization 0.4 0.8
--------------------------------
Loss from operations (1.3) (4.4)
Interest expense (0.1) (0.3)
Other expense 1.1 0.2
Equity loss from investment in NetRadio (3.5) --
--------------------------------
Net loss (3.8)% (4.5)%
================================
8
Certain information in this section contains forward-looking statements. The
Company's 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 the Company's business, the consumer market
for music products and computer software products, retail customer buying
patterns, new or different competition in the Company's traditional and new
markets and the rate of new product development and commercialization. For a
detailed discussion of these factors see the section entitled "Forward Looking
Statements" in the Company's Form 10-K for the year ended March 31, 2000, and
the section "Risk Factors" in the Company's Prospectus dated January 11, 2000
and filed with the SEC on January 12, 2000.
HOME ENTERTAINMENT PRODUCTS
Net sales of home entertainment products for the first quarter ended June 30,
2000 decreased 4.0% to $55.2 million in fiscal 2001 from $57.5 million for the
same period in fiscal 2000. The decrease was due to decreased sales in both the
Computer Products Division and the Music Products Division. Computer Products
sales for the first quarter ended June 30, 2000 decreased by 2.7% to $36.2
million for fiscal 2001 from $37.2 million for the same period in fiscal 2000.
This decrease was primarily due to the personal computer software industry
experiencing lower sales for the period. Music sales for the first quarter ended
June 30, 2000 decreased 6.4% to $19.0 million for fiscal 2001 from $20.3 million
for the same period in fiscal 2000. This decrease was primarily due to a shift
of new release titles closer to the holiday season.
Gross profit of home entertainment products for the first quarter ended June 30,
2000 increased 13.4% or $930,000 to $7.6 million for fiscal 2001 from $6.7
million for the same period in fiscal 2000. As a percentage of net sales, gross
profit for first quarter ended June 30, 2000 increased to 13.8% for fiscal 2001
from 11.7% for the same period in fiscal 2000. Gross margin from the Computer
Products Division's net sales for the first quarter ended June 30, 2000 was $4.3
million or 11.9% as a percentage of net sales in fiscal 2001 compared with $4.1
million or 11.0% as a percentage of net sales in the same period in fiscal 2000.
The increase was primarily due to higher margin sales mix. Gross margin from
music sales for the first quarter ended June 30, 2000 was $3.3 million or 17.4%
of music net sales in fiscal 2001 compared with $2.6 million or 12.8% of music
net sales for the same period in fiscal 2000. The increase was primarily
attributable to programs implemented with the proprietary independent labels.
Selling and promotion expense of home entertainment products for the first
quarter ended June 30, 2000 remained flat at $1.9 million in fiscal 2001 and
$1.9 million for the same period in fiscal 2000 but as a percentage of net sales
increased to 3.4% in fiscal 2001 from 3.3% for the same period in fiscal 2000.
This increase for the first quarter as a percentage of sales was primarily due
to Navarre's reduction in net sales from the prior year.
Distribution and warehousing expense for the first quarter ended June 30, 2000
increased to $1.6 million for fiscal 2001 from $1.2 million for the same period
in fiscal 2000 and as a percentage of net sales, it increased to 2.9% of net
sales in fiscal 2001 from 2.1% of net sales for fiscal 2000. This increase for
the first quarter was primarily due to increased costs associated with increased
returns processing.
General and administration expenses of home entertainment products for the first
quarter ended June 30, 2000 increased to $4.1 million for fiscal 2001 from $3.8
million for the same period in fiscal 2000 and as a percentage of net sales, it
increased to 7.4% for fiscal 2001 from 6.5% for the same period in fiscal 2000.
This increase for the fiscal first quarter was primarily due to having the
infrastructure in place for a higher level of sales.
Interest expense for the first quarter ended June 30, 2000 decreased to $43,000
in fiscal 2001 from $111,000 for the same period in fiscal 2000. This decrease
resulted from having no debt.
9
Other income which consists principally of interest income for the fiscal first
quarter ended June 30, 2000, increased to $589,000 for fiscal 2001 from $141,000
in fiscal 2000. This increase was primarily due to interest received from our
cash investments.
Due to the accumulated losses from prior years and the current quarter's loss,
the Company has not recorded any tax benefit.
Net income of home entertainment products for fiscal first quarter ended June
30, 2000 before the equity loss for the investment in NetRadio was $415,000 for
fiscal 2001 compared to a loss of $362,000 for the same period in fiscal 2000.
eSPLICE, INC.
During the fiscal first quarter ended June 30, 2000, eSplice, Inc. had revenue
of $2,000, operating expenses of $615,000 including $62,000 in selling and
promotion expense and $538,000 in general and administration expense. eSplice,
Inc. had a net loss of $629,000 for the fiscal first quarter ended June 30,
2000.
MARKET RISK
Although the Company is subject to some interest rate risk, because the Company
currently has no bank debt, the Company believes a 10% increase or reduction in
interest rates would not have a material effect on future earnings, fair values
or cash flows.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its working capital needs through bank
borrowings. The level of borrowings has historically fluctuated significantly
during the year. At June 30, 2000, the Company had net accounts receivable of
$42.9 million, inventory of $26.6 million, accounts payable of $58.5 million and
no bank debt.
For the fiscal first quarter ended June 30, 2000, net sales were $55.2 million
for fiscal 2001, a decrease of $2.6 million over net sales of $57.8 million in
fiscal 2000. The Company generated cash of $1.2 million from operating
activities. Accounts receivable decreased by $13.6 million, inventories
increased by $4.2 million and accounts payable and accrued expense decreased by
$8.1 million. Investing activities used $647,000 of cash, including $611,000 for
the purchase of furniture, equipment and leasehold improvements. Cash at the end
of the period increased by $525,000.
The Company has a revolving line of credit with Congress Financial Corporation.
The credit facility has a maximum borrowing limit of $25.0 million and is
secured by substantially all the Company's assets. The available amount
fluctuates based on an asset-borrowing base.
The Company anticipates it could utilize its credit facility during the next
twelve months to meet seasonal working capital needs. The Company believes that
the funds available under its current credit facility together with cash flow
from operations will be adequate to fund its anticipated working capital
requirements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information with respect to disclosures about market risk is contained in the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Market Risk" in this Form 10-Q.
10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of its business, the Company is involved in a number of
routine litigation matters that are incidental to the operation of its business.
These matters generally include collection matters with regard to products
distributed by the Company and accounts receivable owed to the Company. The
Company currently believes that the resolution of any of these pending matters
will not have a material adverse effect on its financial position or results of
operation. In addition, the Company is subject to the litigation listed below.
NAVARRE SECURITIES LITIGATION
On or about December 6, 1999, Daniel Chen, on behalf of himself and all others
similarly situated, filed a class action complaint in the United States District
Court, District of Minnesota, against the Company and its directors alleging,
among other things, violations of Section 10(b) of the Securities Exchange Act
of 1934 and Rule 10b-5 of the Securities Exchange Commission, and violation of
Section 20(a) of the Securities Exchange Act of 1934. Plaintiff's complaint is
essentially based on the factual allegations that Navarre and/or its directors
made material misleading statements or omissions regarding the timing of an
initial public offering of shares in its subsidiary, NetRadio Corporation. The
plaintiff seeks unspecified damages and certification of a class to include all
those similarly situated and who acquired shares of Navarre Corporation during
the time period of November 25, 1998 through December 9, 1998.
Navarre and the directors have timely answered the Chen complaint, denied
liability, asserted numerous affirmative defenses including among others,
failure to state a claim and failure to comply with the pleading requirements of
Federal Rule of Civil Procedure 9 and the Private Securities Litigation Reform
Act of 1995 (the "Reform Act"). Navarre and the directors intend to vigorously
defend against plaintiff's claims.
On January 26, 2000, Judy Poucher filed a complaint virtually identical to the
complaint filed by Mr. Chen seeking essentially the same relief as that
requested by Mr. Chen. Navarre and the directors timely answered the Poucher
complaint, denied liability, asserted numerous affirmative defenses including,
among others, failure to state a claim and failure to comply with the pleading
requirements of Rule 9 of the Federal Rules of Civil Procedure and the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). Navarre and the
directors intend to vigorously defend against Ms. Poucher's claims.
On February 22, 2000, Navarre and the directors served a motion to dismiss the
Chen and Poucher complaints for failure to state a claim for which relief can be
granted. Thereafter, on February 25, 2000, the court held a hearing on Mr.
Chen's and Ms. Poucher's motion to appoint Lead Plaintiffs and Lead Counsel and
to consolidate and amend the complaints. The magistrate judge, by Order dated
March 1, 2000, denied, without prejudice, the motion to appoint Lead Plaintiffs
and Lead Counsel, granted the motion to consolidate the pleadings so that the
litigation is now entitled "In re: Navarre Securities Corp. Litigation," denied,
without prejudice, the motion to amend, and stayed Navarre and the directors'
motion to dismiss pending resolution of the amendment issues, the Lead
Plaintiffs issues, and the Lead Counsel issues. Plaintiffs re-filed their motion
to appoint Lead Plaintiffs and Lead Counsel, and the court granted in part and
denied in part the motion by Order dated April 18, 2000.
Plaintiffs renewed their motion to amend which was heard by the magistrate judge
on June 19, 2000. Navarre and the directors opposed the motion to amend, and on
July 18,2000, the magistrate judge handed down an order granting in part and
denying in part Plaintiffs' motion to amend, requiring Plaintiffs to file the
approved pleading on or before July 21, 2000. Navarre and the directors contend
that Plaintiffs failed to comply with the court's order regarding the amended
complaint. No hearing has yet been scheduled with the magistrate judge's order.
11
This litigation is in the very early stages of proceeding, and pursuant to
applicable procedural rules governing class action lawsuits and the Reform Act,
as well as the agreement between the parties, discovery in the matter is
currently stayed.
The Company and the directors intend to vigorously defend against Plaintiffs'
claims. Because of the contingencies and uncertainties associated with
litigation of the kind, it is difficult, if not impossible, to opine with
respect to the exposure to the Company and/or its directors, if any, at this
juncture.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 20, 1999, the Company announced that it had entered into a
subscription agreement with Fletcher International Limited ("Fletcher") for the
issuance of up to 150,000 shares of Navarre's Class B Convertible Preferred
Stock ("Class B Preferred Stock") for an aggregate purchase price of up to $37.5
million (the "Subscription Agreement"). The Class B Preferred Stock may be
issued in three principal tranches. On August 20, 1999, Navarre issued the first
tranche, consisting of 34,000 shares of Class B Preferred Stock and a three-year
warrant to purchase up to 16,000 shares of Class B Preferred Stock. Fletcher
paid a purchase price of $8.5 million, or $250 per share of Class B Preferred
Stock, and will pay an additional $4.0 million, or $250 per share of Class B
Preferred Stock, if Fletcher exercises the warrant in its entirety.
As disclosed in the Form 10-K for the year ended March 31, 2000, on May 17,
2000, Fletcher converted 20,390 shares of Class B Preferred Stock to 2,115,057
shares of common stock. The Company believes the May 17, 2000 transaction with
Fletcher was exempt pursuant to Section 3(a)(9) of the Securities Act of 1933.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
Exhibit 27: Financial data schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended June 30, 2000
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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
(Registrant)
Date: August 10, 2000 By /s/ Eric H. Paulson
-----------------------
Eric H. Paulson
Chairman of the Board,
President and
Chief Executive Officer
Date: August 10, 2000 By /s/ Charles E. Cheney
------------------------
Charles E. Cheney
Vice-Chairman,
Treasurer and Secretary,
Executive Vice President,
and Chief Financial Officer
13