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 ended September 30, 2001
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 (IRS Employer
of 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 - 21,616,187 shares as of November 12, 2001
NAVARRE CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -
September 30, 2001 and March 31, 2001
Consolidated Statements of Operations -
Three months and six months ended
September 30, 2001 and 2000
Consolidated Statements of Cash Flows - Six months
ended September 30, 2001 and 2000
Notes to Consolidated Financial Statements -
September 30, 2001
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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)
SEPTEMBER 30, 2001 MARCH 31, 2001
------------------ ---------------
(UNAUDITED) (NOTE)
ASSETS
Current assets:
Cash $ 9,736 $ 19,118
Accounts receivable, less allowance for doubtful accounts
and sales returns of $2,804 and $4,986, respectively 49,735 47,874
Inventories 26,409 22,629
Note receivable, related parties -- 56
Prepaid expenses and other current assets 108 209
-------- --------
Total current assets $ 85,988 $ 89,886
Property and equipment, net of accumulated depreciation
of $4,293 and $6,069, respectively 3,439 3,546
Other assets:
Other assets 847 486
-------- --------
Total assets $ 90,274 $ 93,918
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ -- $ --
Accounts payable 66,689 66,918
Accrued expenses 1,798 2,659
-------- --------
Total current liabilities $ 68,487 $ 69,577
Shareholders' equity:
Common stock, no par value:
Authorized shares - 100,000,000,
Issued and outstanding shares - 22,713,305 and
24,030,379, respectively 92,459 94,110
Retained deficit (70,672) (69,769)
-------- --------
Total shareholders' equity 21,787 24,341
-------- --------
Total liabilities and shareholders' equity $ 90,274 $ 93,918
======== ========
Note: The balance sheet at March 31, 2001 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 SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
---------------------------------------------------------
Net sales $ 67,676 $ 78,378 $ 122,161 $ 133,544
Cost of sales 60,728 69,245 108,829 116,763
--------- --------- --------- ---------
Gross profit 6,948 9,133 13,332 16,781
Operating expenses:
Selling and promotion 1,734 2,196 3,584 4,129
Distribution and warehousing 1,169 1,736 2,414 3,360
General and administration 3,982 3,960 8,143 8,564
Depreciation and amortization 361 625 703 822
--------- --------- --------- ---------
7,246 8,517 14,844 16,875
--------- --------- --------- ---------
Income (loss) from operations (298) 616 (1,512) (94)
Other expense:
Interest expense (3) (11) (27) (69)
Other income 333 545 633 1,133
--------- --------- --------- ---------
Income (loss) before equity in loss of NetRadio Corporation 32 1,150 (906) 970
Equity in loss of NetRadio Corporation -- (9,597) -- (11,538)
--------- --------- --------- ---------
Income (loss) before income taxes $ 32 $ (8,447) $ (906) $ (10,568)
========= ========= ========= =========
Income (loss) per common share:
Basic $ 0.00 $ (0.33) $ (0.04) $ (0.42)
========= ========= ========= =========
Diluted $ 0.00 $ (0.33) $ (0.04) $ (0.42)
========= ========= ========= =========
Weighted average common and
common equivalent shares outstanding
Basic 23,201 25,654 23,450 25,120
========= ========= ========= =========
Diluted 23,203 25,654 23,450 25,120
========= ========= ========= =========
4
NAVARRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000
------------------------------
OPERATING ACTIVITIES
Net loss $ (906) $(10,568)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 703 859
Amortization of unearned compensation -- 20
Equity in loss of NetRadio Corporation -- 11,538
Stock option compensation -- 53
Write off of notes receivable 56
Changes in operating assets and liabilities:
Accounts receivable (1,861) (11,141)
Inventories (3,780) (12,982)
Prepaid expenses and other assets (268) 14
Accounts payable and accrued expenses (1,087) 14,260
-------- --------
Net cash used in operating activities (7,143) (7,947)
INVESTING ACTIVITIES
Note receivable, related parties -- (219)
Purchase of equipment and leasehold improvements (588) (2,735)
-------- --------
Net cash used in investing activities (588) (2,954)
FINANCING ACTIVITIES
Proceeds from sale of preferred stock and warrants -- 13
Repurchase of Navarre common stock (1,651) --
-------- --------
Net cash provided by (used in) financing activities (1,651) 13
-------- --------
Net decrease in cash (9,382) (10,888)
Cash at beginning of period 19,118 15,739
-------- --------
Cash at end of period $ 9,736 $ 4,851
======== ========
5
NAVARRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2001
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Navarre 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 six
month period ended September 30, 2001 are not necessarily indicative of the
results that may be expected for the year ending March 31, 2002. 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,
2001. The fiscal 2001 information includes results of the Company's formerly
wholly owned subsidiary, eSplice, Inc. In the fourth quarter of fiscal 2001,
Navarre management and Board of Directors determined that the Company would not
continue to support the further development of eSplice operations.
NOTE B - ADOPTION OF FASB STATEMENT NO. 142
At the beginning of fiscal year 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets. Under the
Statement, amortization of goodwill is prohibited. Instead, it is tested at
least annually for impairment. The adoption of this Statement did not have a
material effect on the Company.
NOTE C - BUSINESS SEGMENTS
Financial information by reportable business segment is included in the
following summary:
THREE MONTHS ENDED SIX MONTHS ENDED
(In thousands) SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
---------------------------------------------------------------------
NET SALES
Home Entertainment Products $ 67,676 $ 78,376 $ 122,161 $ 133,540
eSplice -- 2 -- 4
--------- --------- --------- ---------
CONSOLIDATED $ 67,676 $ 78,378 $ 122,161 $ 133,544
========= ========= ========= =========
OPERATING INCOME (LOSS)
Home Entertainment Products (298) $ 932 (1,512) $ 836
eSplice -- (316) -- (930)
--------- --------- --------- ---------
CONSOLIDATED INCOME (LOSS) (298) $ 616 (1,512) $ (94)
========= ========= ========= =========
Interest Expense $ (3) $ (11) $ (27) $ (69)
Other Income 333 545 633 1,133
Equity loss from investment in NetRadio -- (9,597) -- (11,538)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES $ 32 $ (8,447) $ (906) $ (10,568)
========= ========= ========= =========
6
NOTE D - NET EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
(In thousands, except per share data) THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
----------------------------------------------------------------
Numerator:
Net income (loss) $ 32 $ (8,447) $ (906) $(10,568)
-------- -------- -------- --------
Denominator:
Denominator for basic earnings per
share--weighted-average shares 23,201 25,654 23,450 25,120
Dilutive securities:
Employee Stock Options 2 -- -- --
Denominator for diluted earnings
per share--adjusted
weighted-average shares 23,203 25,654 23,450 25,120
-------- -------- -------- --------
Basic loss per share $ 0.00 $ (0.33) $ (0.04) $ (0.42)
======== ======== ======== ========
Dilutive loss per share $ 0.00 $ (0.33) $ (0.04) $ (0.42)
======== ======== ======== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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, 2001.
GENERAL
Navarre Corporation ("Navarre" or the "Company"), a Minnesota corporation formed
in 1983, is a major distributor of music, software, interactive CD-ROM products
and DVD videos. Navarre sells to major music and software retailers, and
wholesalers such as CompUSA, Inc., Best Buy Co., Inc., Sam's Clubs, Circuit City
Stores, Inc. and Costco Wholesale Corporation.
Navarre's operations for fiscal 2002 are classified into one business segment;
home entertainment. In fiscal 2001, the Company had two business segments; home
entertainment and eSplice, Inc. The home entertainment segment distributes the
Company's two principal products, computer software and music. eSplice, Inc. was
engaged in the development of a platform to aggregate and distribute digital
content including music and software. In the fourth quarter of fiscal 2001,
Navarre's management and its Board of Directors determined that the Company
would not continue to support the further development of eSplice operations.
7
Effective April 1, 2001 the Company realigned its home entertainment divisions
as Navarre Distribution Services (NDS) and Navarre Entertainment Media (NEM).
NDS sells all products that are non-proprietary to Navarre such as computer
software products, DVDs, and major label music (CDs). This division is focused
on providing the highest level of services to its retail customers. The Company
hopes to grow sales and increase market share of NDS by relying upon its ability
to provide value-added services to its retail customers.
NEM sells pre-recorded music of primarily independent artists and labels to
retailers. Unlike NDS's emphasis on the retail customers, growth in NEM is based
on the level of services given to our content providers, which include labels,
studios, and artists. Products sold through NEM are typically proprietary to
Navarre through exclusive distribution, licensing and/or ownership arrangements.
The Company hopes to increase NEM's margin growth through the continued
ownership or licensing of content from independent artists and labels.
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 SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
---------------------------------------------------------
Net sales:
Distribution Services 88.0% 78.6% 88.0% 81.2%
Entertainment Media 12.0 21.4 12.0 18.8
----- ----- ----- -----
Home entertainment products 100.0 100.0 100.0 100.0
eSplice, Inc. -- -- -- --
Total net sales 100.0 100.0 100.0 100.0
Cost of sales 89.7 88.3 89.1 87.4
----- ----- ----- -----
Gross profit 10.3 11.7 10.9 12.6
Selling and promotion 2.6 2.8 2.9 3.1
Distribution and warehousing 1.7 2.2 2.0 2.5
General and administration 5.9 5.1 6.7 6.5
Depreciation and amortization 0.5 0.8 0.5 0.6
----- ----- ----- -----
Income (loss) from operations (0.4) 0.8 (1.2) (0.1)
Interest expense (0.0) (0.0) (0.0) (0.1)
Other income 0.4 0.7 0.5 0.9
Equity loss from investment in NetRadio -- (12.2) -- (8.6)
----- ----- ----- -----
Net income (loss) 0.0% (10.7)% (0.7)% (7.9)%
===== ===== ===== =====
NET SALES
Net sales for the second quarter ended September 30, 2001 decreased 13.7% to
$67.7 million from $78.4 million in the same period in fiscal 2001. For the
six-month period ended September 30, 2001, net sales decreased 8.5% to $122.2
million from $133.5 million in the same period in fiscal 2001. The decrease in
sales for the second quarter and six-month period was due to decreased sales in
both Distribution Media and Entertainment Media. Distribution Services net
sales for the second quarter ended September 30, 2001 decreased 3.3% to $59.5
million from $61.6 million in the same period in fiscal 2001. For the six-month
period ended September 30, 2001, net sales of Distribution Media decreased
0.8% to $107.5 million from $108.4 million in the same period in fiscal 2001.
The decrease of Distribution Services net sales for the second quarter and
six-month period was primarily due to a downturn in major label music revenue.
Entertainment Media net
8
sales for the second quarter ended September 30, 2001 decreased 51.5% to $8.2
million from $16.8 million in the same period in fiscal 2001. For the six-month
period ended September 30, 2001, Entertainment Media net sales of decreased
41.7% to $14.7 million from $25.1 million in the same period in fiscal 2001. The
decrease of Entertainment Media net sales for the second quarter and six-month
period was primarily due to a shift in new releases and delayed holiday orders
from retailers.
GROSS PROFIT
Gross profit for the second quarter ended September 30, 2001 decreased 23.9% or
$2.2 million to $6.9 million from $9.1 million for the same period in fiscal
2001. For the six-month period ended September 30, 2001, gross profit decreased
20.6% or $3.5 million to $13.3 million from $16.8 million for the same period in
fiscal 2001. As a percentage of net sales, gross profit for second quarter ended
September 30, 2001 decreased to 10.3% from 11.7% for the same period in fiscal
2001. For the six-month period ended September 30, 2001, as a percentage of net
sales, gross profit decreased to 10.9% from 12.6% for the same period in fiscal
2001. The decrease in gross profit for the quarter and six-month period ended
September 30, 2001 was due to decreases in both Distribution Services and
Entertainment Media. Gross profit from Distribution Services net sales for the
second quarter ended September 30, 2001 was $6.0 million or 10.1% as a
percentage of net sales compared with $6.4 million or 10.5% as a percentage of
net sales in the same period in fiscal 2001. For the six-month period ended
September 30, 2001, gross profit from Distribution Services net sales was $11.0
million or 10.2% as a percentage of net sales compared with $12.0 million or
11.0% as a percentage of net sales in the same period in fiscal 2001. The
decrease in gross margin from Distribution Services net sales for the quarter
and six-month period ended September 30, 2001 was primarily due to the mix of
products at a lower gross margin percentage. The Company believes that the
signing of certain larger, more prominent vendors may reduce the gross profit to
its current level; however the overall profitability of these vendors may be
greater due to historically lower return levels with certain legendary product.
Gross margin from Entertainment Media net sales for the second quarter ended
September 30, 2001 was $0.9 million or 11.7% as a percentage of net sales
compared with $2.7 million or 16.0% as a percentage of net sales for the same
period in fiscal 2001. For the six-month period ended September 30, 2001, gross
margin from Entertainment Media net sales was $2.3 million or 16.0% as a
percentage of net sales compared with $4.8 million or 19.2% as a percentage of
net sales in the same period in fiscal 2001. The decrease in gross margin from
Entertainment Media net sales for the quarter and six-month period ended
September 30, 2001 was primarily attributable to the mix of products sold at
lower gross margin percentage.
OPERATING EXPENSES
Selling and promotion expense for the second quarter ended September 30, 2001
decreased to $1.7 million from $2.2 million for the same period in fiscal 2001.
As a percentage of net sales, selling and promotion expense decreased to 2.6%
for the second quarter of fiscal 2002 from 2.8% for the same period in fiscal
2001. For the six-month period ended September 30, 2001, selling and promotion
expense decreased to $3.6 million from $4.1 million for the same period in
fiscal 2001. As a percentage of net sales, selling and promotion expense
decreased to 2.9% for the six-month period of fiscal 2002 from 3.1% for the same
period in fiscal 2001. The decrease in selling and promotion expense and
decrease as a percentage of net sales for the quarter and six month period were
primarily due to the lower costs associated with improved management of our
vendors to reduce the need for expedited freight and commissions.
Distribution and warehousing expense for the second quarter ended September 30,
2001 decreased to $1.2 million from $1.7 million for the same period in fiscal
2001. As a percentage of net sales, distribution and warehousing expense
decreased to 1.7% for the second quarter of fiscal 2002 from 2.2% for the same
period in fiscal 2001. For the six-month period ended September 30, 2001,
distribution and warehousing expense decreased to $2.4 million from $3.4 million
for the same period in fiscal 2001. As a percentage of net sales, distribution
and warehousing expense decreased to 2.0% for the six-month period of fiscal
2002 from 2.5% for the same period in fiscal 2001. This decrease in distribution
and warehousing expense and decrease as a
9
percentage of net sales for the quarter and six months were primarily due to the
capabilities and ensuing efficiencies derived from the Company's dedicated
returns facility.
General and administration expenses for the second quarter ended September 30,
2001 remained the same at $4.0 million compared to $4.0 million for the same
period in fiscal 2001. As a percentage of net sales, general and administration
expenses increased to 5.9% for the second quarter of fiscal 2002 from 5.1% for
the same period in fiscal 2001. For the six-month period ended September 30,
2001, general and administration expenses decreased to $8.1 million from $8.6
million for the same period in fiscal 2001. As a percentage of net sales,
general and administration expenses increased to 6.7% for the six-month period
of fiscal 2002 from 6.5% for the same period in fiscal 2001. The increase in
general and administration expenses as a percentage of net sales for the quarter
and six months resulted from support costs associated with eSplice, Inc.
Interest expense for the second quarter ended September 30, 2001 decreased to
$3,000 from $11,000 for the same period in fiscal 2001. For the six-month period
ended September 30, 2001, interest expense decreased to $27,000 from $69,000 for
the same period in fiscal 2001. This decrease for the quarter and six-month
period resulted from not having a line of credit in place for the second quarter
of fiscal 2002.
OTHER INCOME
Other income, which consists principally of interest income, for the second
quarter ended September 30, 2001 decreased to $333,000 from $545,000 for the
same period in fiscal 2001. For the six-month period ended September 30, 2001,
other income decreased to $633,000 from $1.1 million for the same period in
fiscal 2001. The decrease for the quarter and six months resulted from having a
lower principal balance on the NetRadio note and lower interest rates.
Due to the accumulated losses from prior years and the current year-to-date
loss, the Company has not recorded any tax benefit.
Net income for the second quarter ended September 30, 2001 was $32,000 compared
to a loss of $8.4 million for the same period in fiscal 2001. For the six-month
period ended September 30, 2001, the net loss was $906,000 compared to a loss of
$10.6 million for the same period in fiscal 2001.
Due to the write-off of the NetRadio note in fiscal 2001, for the second quarter
and six-month period ended September 30, 2000, the equity in loss of NetRadio
Corporation was $9.6 million and $10.6, respectively.
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 and sale of equity securities. The level of borrowings has
historically fluctuated significantly during the year. At September 30, 2001,
the Company had net accounts receivable of $49.7 million, inventory of $26.4
million, accounts payable of $66.7 million and no bank debt.
The Company used cash of $7.1 million for operating activities. Accounts
receivable increased by $1.9 million, inventories increased by $3.8 million and
accounts payable and accrued expense decreased by $1.1 million. Investing
activities used $588,000 of cash for the purchase of furniture, equipment and
leasehold
10
improvements. The Company also used $1.7 million for the repurchase of Navarre
common stock. As of September 30, 2001, the Company has repurchased 2,941,699
shares for an average price of $1.33. Cash at the end of the period decreased by
$9.4 million.
Although the Company believes it has sufficient cash and working capital to meet
its short-term liquidity and capital requirements, the Company anticipates it
could utilize its credit facility during the next twelve months to meet seasonal
working capital needs or to expand the business through new business lines or
opportunistic acquisitions. On October 3, 2001, the Company entered into an
agreement with General Electric Capital Corporation for a three-year credit
facility. On September 30, 2001, the Company had no debt.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no changes in market risk exposures that affect the quantitative
disclosures presented as of March 31, 2001 in the Company's 10-K.
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 for the District of Minnesota, Case No. 99-1955, alleging violations of
the Securities Exchange Act of 1934 against Navarre Corporation and its
directors. Specifically, Plaintiff alleged, among other things, violations of
Section 10(b) of the 1934 Securities Exchange Act and Rule 10b-5 of the
Securities and Exchange Commission, and violation of Section 20(a) of the 1934
Securities Exchange Act. Plaintiff sought a determination that the action was a
proper class action pursuant to Fed. R. Civ. Pro. 23 and sought compensatory
damages in an unspecified amount along with costs and expenses incurred,
including the reasonable allowance of fees for attorneys, accountants and
experts. Navarre and the directors timely answered the Complaint on December 29,
1999, denying liability and damages and asserting certain affirmative defenses.
On January 26, 2000, Judy Poucher filed a complaint virtually identical to the
complaint filed by Mr. Chen seeking the same relief as that requested by Mr.
Chen. Navarre and the directors timely answered the Poucher complaint, denied
liability, and asserted numerous affirmative defenses. Navarre has tendered
these matters to its insurance carrier for coverage under the terms of its
policy.
On November 27, 2000, Navarre and the directors served a motion and supporting
papers to dismiss Plaintiffs' complaint with prejudice for failure to state a
claim. Plaintiffs responded to the motion on January 11, 2001, and Navarre
served and filed its reply on February 1, 2001. A hearing on the motion to
dismiss was held on February 13, 2001, before the Magistrate Judge. On April 23,
2001, the Magistrate Judge issued his Report and Recommendation that the case be
dismissed with prejudice and on the merits. Plaintiffs objected to the Report
and Recommendation, but, by Order dated May 29, 2001, the District Court
overruled the objection and adopted the Report and Recommendation and dismissed
Plaintiffs' claims with prejudice and on the merits.
11
On June 20, 2001, Plaintiffs filed a Notice of Appeal with the Eighth Circuit
Court of Appeals. The Plaintiffs Brief was served and filed on August 15, 2001.
The Company and directors' brief was filed and served on September 15, 2001 and
the Plaintiffs Reply Brief was served and filed on September 28, 2001. The
Matter has been fully briefed and the parties are waiting for a date for oral
argument.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on September 13, 2001. At
the meeting, the following action was taken:
1. The following persons were re-elected as directors of the
Company:
NAMES VOTES FOR VOTES WITHHELD
----- --------- --------------
Charles E. Cheney 19,810,598 1,424,954
Tom Weyl 19,974,721 1,260,831
Dickinson G. Wiltz 19,859,577 1.375,975
2. An amendment to the Company's 1992 Stock Option Plan was approved
by a vote of 19,026,812 shares in favor, 2,101,615 shares
against, 107,125 shares abstaining and no broker non-votes. The
amendment required the affirmative vote of a majority of the
holders present and voting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is included herein:
Exhibit 10.1 Credit Agreement between General Electric Capital
Corporation and Navarre Corporation, dated October 3, 2001.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended September 30, 2001
12
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: November 13, 2001 By /s/ Eric H. Paulson
----------------------
Eric H. Paulson
Chairman of the Board,
President and
Chief Executive Officer
Date: November 13, 2001 By /s/ Charles E. Cheney
------------------------
Charles E. Cheney
Vice-Chairman,
Treasurer and Secretary, Executive
Vice President, and Chief Strategic
Officer (Principal Accounting
Officer)
13