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 December 31, 1998
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 (I.R.S. 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 (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 - 23,053,120 SHARES AS OF JANUARY 31, 1999
<PAGE>
NAVARRE CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated balance sheets -
December 31, 1998 and March 31, 1998
Consolidated statements of operations -
Three and nine months ended December 31, 1998 and 1997
Consolidated statements of cash flows -
Nine months ended December 31, 1998 and 1997
Notes to consolidated financial statements - December 31, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
NAVARRE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1998
-----------------------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 67 $ 23
Accounts receivable, less allowance for doubtful accounts
and sales returns of $3,694 and $2,412, respectively 81,404 52,383
Inventories 39,654 23,188
Note receivable, related parties 359 406
Refundable income taxes -- 2,265
Prepaid expenses and other current assets 818 962
-----------------------------
Total current assets 122,302 79,227
Property and equipment, net of accumulated depreciation of
$4,633 and $3,647, respectively 3,414 2,957
Other assets:
Goodwill 933 1,174
Other assets 207 331
-----------------------------
Total assets $ 126,856 $ 83,689
=============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ 19,823 $ 32,445
Current maturities of long-term debt 232 162
Accounts payable 65,199 45,554
Accrued expenses 1,485 1,019
-----------------------------
Total current liabilities 86,739 79,180
Long-term debt, less current maturities 133 181
Shareholders' equity:
Preferred stock, no par value:
Authorized shares - 10,000,000,
Issued and outstanding shares - 7,619 and none, respectively 100 --
Common stock, no par value:
Authorized shares - 50,000,000,
Issued and outstanding shares - 21,159,626 and 7,009,170, respectively 83,724 8,113
Retained deficit - Note B (43,684) (3,558)
Unearned compensation (156) (227)
-----------------------------
Total shareholders' equity 39,984 4,328
-----------------------------
Total liabilities and shareholders' equity $ 126,856 $ 83,689
=============================
</TABLE>
SEE ACCOMPANYING NOTES
NOTE: THE BALANCE SHEET AT MARCH 31, 1998 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
<PAGE>
NAVARRE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales:
Computer software $ 51,652 $ 49,878 $ 123,782 $ 108,207
Music 22,940 19,559 58,900 49,607
---------------------------------------------------------
74,592 69,437 182,682 157,814
Cost of sales 65,922 61,148 161,012 139,012
---------------------------------------------------------
Gross profit 8,670 8,289 21,670 18,802
Operating expenses:
Selling and promotion 3,065 1,457 6,409 4,012
Distribution and warehousing 1,589 849 3,356 2,144
General and administration 5,477 3,337 13,469 8,709
Depreciation and amortization 639 642 1,255 1,970
---------------------------------------------------------
10,770 6,285 24,489 16,835
---------------------------------------------------------
Income (loss) from operations (2,100) 2,004 (2,819) 1,967
Other income (expense):
Interest expense (741) (1,049) (2,264) (2,264)
Other income (expense) 271 (63) 446 100
---------------------------------------------------------
Income (loss) before income taxes (2,570) 892 (4,637) (197)
Income tax expense (benefit) 1,427 368 642 (78)
Minority interest -- 55 (110) 156
---------------------------------------------------------
Net earnings (loss) $ (3,997) $ 579 $ (5,389) $ 37
=========================================================
Preferred nondetachable conversion feature
and warrant valuation -- -- (34,229) --
Preferred dividend requirements (85) -- (662) --
---------------------------------------------------------
Net earnings (loss) applicable to common shares $ (4,082) $ 579 $ (40,280) $ 37
=========================================================
Loss per common share:
Basic $ (.26) $ .08 $ (3.55) $ .01
=========================================================
Diluted $ (.26) $ .08 $ (3.55) $ .01
=========================================================
Weighted average common and
common equivalent shares outstanding
Basic 15,914 6,906 11,335 6,904
=========================================================
Diluted 15,914 7,223 11,335 7,187
=========================================================
</TABLE>
SEE ACCOMPANYING NOTES
4
<PAGE>
NAVARRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
1998 1997
---------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (5,389) $ 38
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,017 787
Amortization of intangible assets 238 1,084
Amortization on unearned compensation 71 71
Minority interests in subsidiary 110 (49)
Changes in operating assets and liabilities:
Accounts receivable (29,021) (17,630)
Inventories (16,466) (8,056)
Prepaid expenses and other assets 271 (18)
Income tax receivable 2,265 --
Accounts payable and accrued expenses 20,001 5,489
Income taxes payable -- (135)
---------------------------
Net cash used in operating activities (26,903) (18,419)
INVESTING ACTIVITIES
Note receivable, related parties 47 (15)
Purchase of equipment and leasehold improvements (1,474) (494)
---------------------------
Net cash used in investing activities (1,427) (509)
FINANCING ACTIVITIES
Payment on long-term debt (103) (586)
Proceeds from notes payable, bank 152,669 136,215
Payment on notes payable, bank (165,291) (117,350)
Proceeds from notes payable, other 125 --
Proceeds from sale of subsidiary stock 65 --
Proceeds from sale of preferred stock and warrants 18,823 --
Exercise of common stock warrants 21,528 --
Exercise of common stock options 1,067 10
Payment of dividends (509) --
---------------------------
Net cash provided by financing activities 28,374 18,289
---------------------------
Net increase in cash 44 (639)
Cash at beginning of period 23 655
---------------------------
Cash at end of period $ 67 $ 16
===========================
</TABLE>
SEE ACCOMPANYING NOTES
5
<PAGE>
NAVARRE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Navarre Corporation and its
majority owned subsidiary, Net Radio Corporation, 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 nine
month period ended December 31, 1998 are not necessarily indicative of the
results that may be expected for the year ended March 31, 1999. 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,
1998. Certain balances at December 31, 1997 have been reclassified to conform to
the December 31, 1998 presentation.
NOTE B - NET EARNINGS (LOSS) PER SHARE
Preferred stock, preferred stock warrants and employee stock options are not
included in the periods ending December 31, 1998 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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
----------------------- -----------------------
<S> <C> <C> <C> <C>
Numerator:
Net earnings (loss) $ (3,997) $ 579 $ (5,389) $ 38
Less preferred nondetachable conversion feature
and warrant valuation -- -- (34,229) --
Less preferred dividend requirements (85) -- (662) --
Adjusted net earnings (loss) applicable to common stock (4,082) $ 579 (40,280) $ 38
Denominator:
Denominator for basic earnings per
share--weighted-average shares 15,914 6,906 11,335 6,904
Dilutive securities:
Preferred stock -- -- -- --
Preferred stock warrants -- -- -- --
Employee stock options -- 317 -- 283
Denominator for diluted earnings
per share--adjusted
weighted-average shares 15,914 7,223 11,335 7,187
----------------------- -----------------------
Basic earnings (loss) per share $ (.26) $ .08 $ (3.55) $ .01
======================= =======================
Dilutive earnings (loss) per share $ (.26) $ .08 $ (3.55) $ .01
======================= =======================
</TABLE>
6
<PAGE>
As previously disclosed, on May 1, 1998, the Company issued $20.0 million in
Class A Convertible Preferred Stock. Each share of Class A Convertible Preferred
Stock was issued at a price of $13.125 per share and is convertible into five
shares of Navarre common stock at a price of $2.625, which was the fair market
value on April 2, 1998, the date the Company had an agreement in principal with
investors to proceed with the offering. In addition, for each share of Class A
Convertible Preferred Stock, each purchaser received a five-year warrant to
purchase five shares of Navarre common stock at $3.50 per share which was equal
to one hundred and thirty-three percent (133%) of the effective conversion price
of the Class A Convertible Preferred Stock into common stock. The holders of the
Preferred Stock are entitled to receive cumulative dividends of 10% per annum
payable quarterly, beginning on June 30, 1998. The dividend can be paid in cash
or if the shareholder elects, in Company common stock. With respect to the
quarter ended December 31, 1998, the Company accrued an aggregate dividend of
$85,008. Since holders of Preferred Shares did not elect to receive their
dividend in Common Stock, the Company ultimately paid cash dividends of $85,008.
At the time the Company agreed to issue the Class A Convertible Preferred Stock
and the warrants, it did not assign a separate value to the conversion feature
of the Class A Convertible Preferred Stock or the warrants; rather, the amount
and pricing of the securities to be issued were arrived at as a result of
negotiations between the Company and third party investors. After the end of the
quarter ended December 31, 1998 the Company determined its financial statements
for the quarters ended June 30 and September 30, 1998 should be restated to
reflect the allocation of proceeds to the beneficial conversion features of the
Company's Class A Convertible Preferred Stock and accompanying warrants. Based
on the Company's stock price on May 1, 1998, the date of issuance of the Class A
Convertible Preferred Stock, these securities are deemed to have contained
beneficial conversion features that must be recognized as a dividend paid to
preferred stockholders. Revenues, expenses, net loss, total assets and total
shareholders' equity are not affected by this restatement. The Company is
conforming its financial statements with the Financial Accounting Standards
Board's Emerging Issues Task Force - Topic D60 ("Accounting for the Issuance of
Convertible Preferred Stock and Debt Securities with a Nondetachable Conversion
Feature") issued March 13, 1997, and considering the Task Force's Working Group
discussions and tentative conclusions reported on Issue 98-5, November 1998,
which provide that any discounts resulting from an allocation of proceeds to the
beneficial conversion feature and warrants are analogous to a dividend, and
should be recognized as a return to the preferred stockholders over the minimum
conversion period (from date securities are issued to date they are first
convertible). As noted above the value of the Nondetachable Conversion Feature
and accompanying warrants was $34,228,583. The Company is amending its Forms
10-Q with the Securities and Exchange Commission for the quarters ended June 30
and September 30, 1998 to reflect the restatement.
7
<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 NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
------------------- -------------------
Net sales:
Computer software 69.2% 71.8% 67.8% 68.6%
Music 30.8 28.2 32.2 31.4
------------------- -------------------
Total net sales 100.0 100.0 100.0 100.0
Cost of sales 88.4 88.1 88.1 88.1
------------------- -------------------
Gross profit 11.6 11.9 11.9 11.9
Selling and promotion 4.1 2.1 3.5 2.5
Distribution and warehousing 2.1 1.2 1.8 1.4
General and administration 7.3 4.8 7.4 5.5
Depreciation and amortization 0.9 0.9 0.7 1.2
------------------- -------------------
Income (loss) from operations (2.8) 2.9 (1.5) 1.2
Interest expense (1.0) (1.5) (1.2) (1.4)
Other income 0.4 0.1 0.2 0.1
------------------- -------------------
Net earnings (loss) (5.4)% 0.8% (2.9)% 0.0%
=================== ===================
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. For a more detailed discussion of the factors, see the
"Business Section" in the Company's Form 10-K for the year ended March 31, 1998.
Net sales increased 7.5% from $69.4 million to $74.6 million for the three month
period ended December 31, 1998 and 15.8% from $157.8 million to $182.7 million
for the nine month period ended December 31, 1998. The gain was due to sales
gains in both computer software and the music sales. Computer software sales
increased by 3.6% from $49.9 million to $51.7 million for the three month period
ended December 31, 1998 and by 14.4% from $108.2 million to $123.8 million for
the nine month period ended December 31, 1998. The increase was primarily due to
the continued strengthening and broadening of its customer base, including sales
to new customers. Music sales increased by 16.8% from $19.6 million to $22.9
million during the three month period ended December 31, 1998 and by 18.8% from
$49.6 million to $58.9 million for the nine month period ended December 31,
1998. The increase was primarily due to sales resulting from exclusive
distribution agreements with labels having holiday oriented product.
Gross profit increased 4.8% or $380,000 from $8.3 million last fiscal year to
$8.7 million for the three month period ended December 31, 1998 and increased by
15.4% or $2.9 million from $18.8 last fiscal year to $21.7 for the nine month
period ended December 31, 1998. As a percentage of net sales, gross profit
decreased from 11.9% last fiscal year to 11.6% for the three month period ended
December 31, 1998 but remained comparable to last fiscal year at 11.9% for the
nine month period ending December 31, 1998. Gross margins from computer
software's net sales were $5.0 million or 9.7% as a percentage of net sales
during the three month period and $11.7 million or 9.4% as a percentage of net
sales for the nine month period ended December 31, 1998 compared with $5.5
million or 11.1% as a percentage of net sales during the three month period and
$11.3 million or 10.4% for the nine month period last fiscal year. The fiscal
1999 gross profit for both the three and nine month period for computer software
sales was in respect closer to the expectations of the normal gross margins for
computer sales than the gross margins of last year. Gross margins from music
sales were $3.7 million or 16.2%
8
<PAGE>
of music net sales for the three month period and $10.0 million or 17.0% of
music sales for the nine month period ended December 31, 1998 compared with $2.8
million or 14.1% of music net sales for the three month period and $7.5 million
or 15.1% for the nine month period last fiscal year. The increase in gross
profit for both the three and nine month period was primarily the result of fees
assessed for the processing of returns.
Selling and promotion expense increased from $1.5 million last fiscal year to
$3.1 million during the three month period and from $4.0 million last fiscal
year to $6.4 million during the nine month period ended December 31, 1998. As a
percentage of net sales, it increased from 2.1% last fiscal year to 4.1% during
the three month period and from 2.5% last fiscal year to 3.5% during the nine
month period ended December 31, 1998. The higher level of expense was due to
higher freight costs and substantially higher expenses associated with the
Company's majority-owned subsidiary Net Radio.
Distribution and warehousing expense increased from $849,000 last fiscal year to
$1.6 million during the three month period and from $2.1 million last fiscal
year to $3.4 million during the nine month period ended December 31, 1998. As a
percentage of net sales, it increased from 1.2% to 2.1% of net sales during the
three month period and from 1.4% to 1.8% of net sales during the nine month
period ended December 31, 1998. The increase was primarily the result of
instituting significant upgrades in the Company's operations including the
doubling of its returns processing capabilities.
General and administration expenses increased from $3.3 million last fiscal year
to $5.5 million during the three month period and from $8.7 million last fiscal
year to $13.5 during the nine month period ended December 31, 1998. As a
percentage of net sales, it increased from 4.8% to 7.3% of net sales during the
three month period and from 5.5% last fiscal year to 7.4% during the nine month
period ended December 31, 1998. The higher level of expense was primarily due to
expenses associated with the Company's majority-owned subsidiary Net Radio.
Income tax expense resulted from the reversing of the Company's refundable
income taxes.
Interest expense decreased from $1.1 million for last fiscal year to $741,000
for the three month period but remained the same as last fiscal year at $2.3
million for the nine month period ended December 31, 1998. This decrease in the
three month period resulted from substantially lower borrowings due to the
additional cash received from exercising warrant holders.
The net loss was $4.0 million for the three month period and $5.4 million for
the nine month period ended December 31, 1998 compared with net earnings of
$579,000 for the three month period and $38,000 for the nine month period last
fiscal year.
YEAR 2000
The Company is evaluating the potential impact of what is commonly referred to
as the Year 2000 issue, concerning the inability of certain information systems
to properly recognize and process dates containing the year 2000 and beyond. The
Company has established a Year 2000 team working with every operational area
throughout the Company, and this team has worked with management to commence the
following steps: (i) implementing a Year 2000 Assessment and Testing Plan for
all internal information systems and other systems that contain
micro-controllers that may be affected by the Year 2000 date change; (ii)
implementing a Year 2000 Assessment and Testing Plan for all Company products,
(iii) communicating with third parties that supply product to the Company to
ensure they are addressing the Year 2000 issue; and (iv) contingency and
disaster recovery planning to ensure Year 2000 problem resolution.
The Company has identified and tested the systems it believes are critical and
the test results indicate that these systems are Year 2000 compliant or will
become Year 2000 compliant with additional software upgrades. The Company
expects to complete testing of mission critical systems by March 30, 1999 and
non-mission critical systems by June 30, 1999. Implementation of program
upgrades and software system changes have begun. Regardless of the Year 2000
compliance of the Company's systems and products, there can be no assurance that
the Company will not be adversely affected by the failure of others to become
Year 2000 compliant.
To date, the Company has incurred expenditures totaling $216,000 in connection
with the Company's effort to become Year 2000 compliant. At this time, the
Company estimates that its additional direct costs for Year 2000 compliance will
consist of costs related to Year 2000 compliance and expenditures for software
in the approximate amount of $758,000.
9
<PAGE>
Because the Company is still in the discovery and evaluation process of
assessing its overall Year 2000 exposure, it cannot at this time state with
certainty that the Year 2000 issues will not have a material adverse impact on
its financial condition, results of operations and liquidity. Although the
Company considers them unlikely, the Company believes that the following
situations make up the Company's "most reasonably likely worst case Year 2000
scenarios": (i) disruption of a significant customer's ability to accept
products or pay invoices, (ii) disruption of suppliers, (iii) disruption of the
Company's internal management information systems, and (iv) disruption of the
Company's external management information systems.
While the Company recognizes the need for contingency planning, it has not yet
developed any specific contingency plans for potential Year 2000 disruptions.
The Company does anticipate developing contingency plans for its most critical
areas, but details of such plans will depend on the Company's final assessment
of the problem as well as the evaluation and success of its remediation efforts.
Future disclosures will include contingency plans as they become available.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its working capital needs through bank
borrowings and most recently from the sales of equity securities. The level of
borrowings has historically fluctuated significantly during the year. At
December 31, 1998, the Company had net accounts receivable of $81.4 million and
inventory of $39.7 million. These assets are primarily financed by accounts
payable of $65.2 million and bank borrowings of $19.8 million.
For the nine month period ended December 31, 1998, net sales were $182.7
million, an increase of $24.9 million over net sales of $157.8 million during
the same period last fiscal year. The Company used cash of $26.9 million in
operating activities. Accounts receivable increased by $29.0 million and
inventories increased by $16.5 million while accounts payable and accrued
expenses increased by $20.0 million. Investing activities used $1.4 million of
cash for the purchase of furniture, equipment and leasehold improvements. The
Company generated net cash of $28.4 million in financing activities primarily
through proceeds from a private placement and exercise of options and warrants
for the aggregate net consideration of $40.4 million and from net bank
borrowings of $12.6 million.
The Company has a revolving line of credit with Congress Financial Corporation.
The credit facility has a maximum borrowing limit of $45.0 million and is
secured by substantially all the Company's assets. The available amount
fluctuates based on an asset borrowing base.
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.
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 include collection matters with regard to products distributed by
the Company and accounts receivable owed to the Company. In addition the Company
is involved in the following legal proceeding.
On March 5, 1998, Bank of Montreal ("Plaintiff") commenced an action in United
States District Court in the Northern District of Illinois alleging, among other
things, breach of contract, breach of duty to negotiate in good faith and breach
of trade confirmation in connection with a proposed commercial transaction
between the Company and the Plaintiff. The Plaintiff sought damages in an amount
in excess of $1.0 million. On April 23, 1998, the Company submitted its Answer
to the Complaint denying liability and asserting various affirmative defenses.
In February 1999, the parties agreed to dismiss the lawsuit with prejudice and
with no payments or other consideration by Navarre.
10
<PAGE>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(C) ISSUANCE OF UNREGISTERED SECURITIES
On May 1, 1998, the Company issued 1,523,810 shares of Class A Convertible
Preferred Stock in a private placement to a group of investors for aggregate
consideration of $19.0 million, net of expense. The Class A Convertible
Preferred Stock was issued at a price of $13.125 per share and is convertible
into five shares of Navarre common stock at any time after June 30, 1998. In
addition, for each share of Class A Convertible Preferred Stock acquired, each
investor received a five-year warrant to purchase five shares of Navarre common
stock at a price of $3.50 per share. The Class A Convertible Preferred Stock has
a cumulative annual dividend of ten (10%) payable quarterly beginning June 30,
1998. The Company has the right to call the warrants in certain circumstances.
In connection with the private placement, the Company also granted a four year
warrant to purchase 380,953 shares of Common Stock at a price of $2.625 per
share to Delphi Financial Corporation, the Company's agent in the private
placement. During the period from July 1, 1998 through January 31, 1998, holders
of all 1,523,810 shares of the Company's Convertible Class A Preferred Stock
converted their Preferred Stock into 7,619,050 shares of common stock and
holders of warrants issued in May 1998 exercised their warrants for an aggregate
of 7,849,165 shares and paid the Company gross proceeds of $27,096,245. The
Company believes that the transactions were exempt pursuant to Section 4(2) of
the Securities Act of 1933 and Rule 506 under Regulation D.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
Exhibit 27: Financial data schedule
(b) The Company did not file any reports on Form 8-K during the three
months ended December 31, 1998
11
<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: February 12, 1999 By /s/ Eric H. Paulson
-----------------------
Eric H. Paulson
Chairman of the Board,
President and
Chief Executive Officer
Date: February 12, 1999 By /s/ Charles E. Cheney
-------------------------
Charles E. Cheney
Treasurer and Secretary,
Executive Vice President,
and Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 67
<SECURITIES> 0
<RECEIVABLES> 81,404
<ALLOWANCES> 1,986
<INVENTORY> 39,654
<CURRENT-ASSETS> 122,302
<PP&E> 8,047
<DEPRECIATION> 4,633
<TOTAL-ASSETS> 126,856
<CURRENT-LIABILITIES> 86,739
<BONDS> 0
0
100
<COMMON> 83,724
<OTHER-SE> (43,840)
<TOTAL-LIABILITY-AND-EQUITY> 126,856
<SALES> 182,682
<TOTAL-REVENUES> 182,682
<CGS> 161,012
<TOTAL-COSTS> 24,489
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 720
<INTEREST-EXPENSE> 2,264
<INCOME-PRETAX> (4,637)
<INCOME-TAX> 642
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</TABLE>
