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 quarter ended June 30, 1996
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 of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7400 49th Avenue North, New Hope, MN 55428
(Address of principle executive offices)
Registrant's telephone number, including area code (612) 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 - 6,603,168 shares as of July 31, 1996
<PAGE>
NAVARRE CORPORATION
Index
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated statements of financial position -
June 30,1996 and March 31, 1996
Consolidated statements of operations -
Three months ended June 30, 1996 and 1995
Consolidated statements of cash flows -
Three months ended June 30, 1996 and 1995
Notes to consolidated financial statements -
June 30, 1996
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
Part I. Financial Information
NAVARRE CORPORATION
Consolidated Statements of Financial Position
(In thousands, except share amounts) (Unaudited)
June 30, March 31,
1996 1996
Assets -------- ---------
Current assets:
Cash $ 3 $ 4
Trade accounts receivable, net of allowances
of $1,336 and $943, respectively 42,416 41,023
Inventories 16,450 14,816
Note receivable, officer 200 ---
Prepaid expenses and other current assets 966 897
------- -------
Total current assets 60,035 56,740
Investments 2,169 ---
Property and equipment(net) 2,863 2,861
Other assets 974 507
------- -------
Total assets $66,041 $60,108
======= =======
Liabilities and shareholders' equity
Current liabilities:
Note payable to bank $23,279 $21,115
Note payable to office 497 ---
Note payable - other 486 ---
Accounts payable, trade 29,733 27,715
Accrued expenses 999 1,321
Income taxes payable 70 309
------- ------
Total current liabilities 55,064 50,460
Shareholders' equity:
Common stock, no par value: Authorized shares -
20,000,000, Issued and outstanding shares -
6,533,918 and 6,328,946, respectively 7,587 6,460
Retained earnings 3,807 3,605
Unearned compensation (417) (417)
------- -------
Total shareholders' equity 10,977 9,648
------- -------
Total liabilities and shareholders' equity $66,041 $60,108
======= =======
See accompanying notes
Note: The balance sheet at March 31, 1996 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.
<PAGE>
NAVARRE CORPORATION
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended June 30,
1996 1995
-------- --------
Net sales:
Computer software $28,009 $14,947
Music 11,583 11,284
-------- -------
39,592 26,231
Cost of sales 34,525 22,627
-------- --------
Gross profit 5,067 3,604
Operating expenses:
Selling and promotion 1,168 1,076
Distribution and warehousing 515 371
General and administration 2,476 2,095
-------- --------
4,159 3,542
-------- --------
Income from operations 908 62
Other expense:
Interest expense (463) (340)
Other expense (104) (12)
-------- --------
Income (loss) before income taxes 341 (290)
Income tax expense(benefit) 140 (116)
-------- -------
Net income(loss) $ 201 $ (174)
======== ========
Earnings(loss) per common share:
Net income(loss) $ .03 $ (.03)
======== ========
Weighted average number of
common and common equivalent
shares outstanding 7,616 6,070
======== ========
See accompanying notes
<PAGE>
NAVARRE CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended June 30,
1996 1995
--------- -------
Operating activities
Net income(loss) $ 201 $ (174)
Adjustments to reconcile net income(loss)
to net cash used in operating activities
Depreciation and amortization 211 173
Trade accounts receivable (1,393) (1,280)
Inventories (1,634) 974
Prepaid expenses and other assets 29 522
Accounts payable and accrued expenses 1,696 (3,600)
Income taxes payable (239) (159)
-------- -------
Net cash used in operating activities (1,129) (3,544)
Investing activities
Note receivable, officer (200) 255
Purchase of business (250) ---
Equity investment in business (1,000) ---
Purchase of furniture, equipment and
leasehold improvements (211) (206)
-------- -------
Net cash (used in) provided by investing
activities (1,661) 49
Financing activities
Payment on long-term debt (14) (45)
Proceeds from notes payable, bank 36,230 27,732
Payment on notes payable, bank (34,066) (23,889)
Proceeds from notes payable, officer 497 ---
Payment on notes payable, officer --- (302)
Exercise of common stock options 142 ---
-------- --------
Net cash provided by financing activities 2,789 3,496
-------- --------
Net (decrease)increase in cash (1) 1
Cash at beginning of period 4 2
-------- --------
Cash at end of period $ 3 $ 3
======== ========
Supplemental schedule of non-cash
transactions; Common stock issued
as partial consideration for acquistion
and equity investment in businesses. $ 984 ---
======== ========
See accompanying notes
<PAGE>
NAVARRE CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 1996
Note A - Basis of Presentation
The accompanying unaudited financial statements of Navarre Corporation and
its wholly owned subsidiary, Digital Entertainment, Inc., have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article of
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, 1996 are not
necessarily indicative of the results that may be expected for the year ended
March 31, 1997. 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, 1996. The shares outstanding and per share
data have been adjusted to reflect the Company's 2-for-1 stock split in the
form of a 100% stock dividend distributed on June 21, 1996.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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,
1996 1995
------ ------
Net sales:
Computer 70.7% 57.0%
Music 29.3 43.0
------ -----
Total net sales 100.0 100.0
Cost of sales 87.2 86.3
------ -----
Gross profit 12.8 13.7
Selling and promotion 3.0 4.1
Distribution and warehousing 1.3 1.4
General and administration 6.3 8.0
------ -----
Income from operations 2.3 0.2
Interest expense 1.2 1.3
Other expense 0.3 0.0
------ -----
Net income (loss) 0.5 (0.7)
Certain of this 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.
Net sales increased 51.1% from $26.2 million to $39.6 million. The gain was
primarily due to increased sales in the Computer Products Division. Computer
products sales increased by 87.9% from $14.9 million to $28.0 million. This
was primarily due to the Company's gains in CD-ROM market share and
formalized agreements with new accounts and major retailers. Music sales
increased 2.6% from $11.2 million to $11.6 million. Price increases did not
materially contribute to the increase in net sales in computer products.
<PAGE>
Gross profit increased 41.6% or $1.5 million from $3.6 million to $5.1
million. As a percentage of net sales, gross profit decreased from 13.7%
during the three month period ending June 30, 1995 to 12.8% for the same
period in 1996. Overall gross margins declined due to the fact that lower
gross margin computer products sales accounted for a higher percentage of net
sales. Gross margins from the Computer Products Division's net sales were
$2.7 million or 9.7% as a percentage of net sales during the three month
period in 1996 compared with $1.3 million or 8.5% as a percentage of net
sales in the same period in 1995. The increase in gross margin for the
Computer Products was primarily due to decreased cost of product. Gross
margins from music sales were $2.4 million or 20.4% of music net sales for
the three month period in 1996 compared with $2.3 million or 20.6% of music
net sales for the same period in 1995.
Selling and promotion expense increased from $1.1 million in the prior year
to $1.2 million in 1996 but decreased as a percentage of net sales from 4.1%
to 3.0%. The higher level of expense was due to increased freight cost on
the higher level of sales.
Distribution and warehousing expense increased from $371,000 in the three
month period for 1995 to $515,000 in the same period in 1996. As a
percentage of net sales it decreased from 1.4% of net sales to 1.3% of net
sales. The increased expense was related to higher volume of product shipped.
General and Administration expenses increased from $2.1 million in the prior
year to $2.5 million in the current period. As a percentage of net sales,
they decreased from 8.0% to 6.3%.
The decreases in selling and promotion expense, distribution and warehousing
expense and general and administration expense as a percent of net sales were
in part, the result of the Company's cost containment program that was
commenced in Fiscal 1996. The Company is now experiencing the positive
benefits.
Interest expense increased from $340,000 for the three month perio in 1995 to
$463,000 for the three month period in 1996. This increase resulted from
substantially higher borrowing to support the Company's higher inventory
levels resulting from its growth in sales and market share.
Net earnings were $201,000 for the three month period in 1996 compared with
a net loss of $174,000 in the same period in 1995.
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, 1996, the Company had net accounts receivable
of $42.4 million and inventory of $16.5 million. These assets are primarily
financed by accounts payable of $29.7 million and bank borrowings of $23.3
million.
<PAGE>
The Company has a revolving line of credit with Heller Financial, Inc.
The available amount fluctuates based on an asset borrowing base. Maximum
borrowings available under the revolving line of credit are $35.0 million and
are secured by substantially all the Company's assets.
For the three-month period ended June 30, 1996, net sales were $39.6 million,
an increase of $13.4 million over net sales of $26.2 million during the same
three-month period for the prior year. The Company had a net income of
$201,000 during this three month period. The Company financed this growth by
using cash of $1.1 million from operating activities. Inventories increased
by $1.6 million during the period and accounts receivable increased by $ 1.4
million. These changes were offset partially by a $1.7 million increase in
accounts payable and accrued expenses. Investing activities used $1.6
million of cash, including $1.2 million for investments, $211,000 for the
purchase of furniture, equipment and leasehold improvements and $200,000 for
a loan to an officer. The Company generated net cash of $2.8 million in
financing activities primarily through proceeds of net bank borrowings of
$2.2 million during the period and proceeds of $497,000 from borrowings from
an officer. Cash at the end of the period was approximately as the same as it
was at the beginning of the period.
The Company anticipates it will utilize its credit facility during the next
twelve months to meet seasonal working capital needs. The Company believes
cash from operations together with borrowing under the credit facility with
Heller will be appropriate to fund its working capital needs over the next
twelve months.
Part II. Other information
Item 1. Legal Proceedings
There have been no material developments in the Company's legal proceedings.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
Exhibit 11: Statement Re: Computation of per share earnings
(b) The Company did not file any reports on Form 8-K during the three
months ended June 30, 1996.
<PAGE>
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 8, 1996 By /s/ Eric H. Paulson
----------------------
Eric H. Paulson
Chairman of the Board,
President and
Chief Executive Officer
Date: August 8, 1996 By /s/ Charles E. Cheney
---------------------
Charles E. Cheney
Treasurer and
Secretary, Executive
Vice President,
and Chief Financial Officer
<PAGE>
NAVARRE CORPORATION
Exhibit 11 - Statement Re: Computation of Per Share Earnings
(In thousands, except per share data)
Three Months Ended June 30
1996 1995
------------ ------------
Fully Diluted
Weighted average shares outstanding 6,344 6,070
Net effect of dilutive stock options
and warrants - based on the treasury
stock method using the higher of the
year end or average market price 1,272 ---
_________ _________
7,616 6,070
========= =========
Net income(loss) $ 201 $ (174)
========= =========
Net income(loss) per common shares $ .03 $ (.03)
========= =========
