Navarre Corporation Reports Financial Results for Second Quarter of Fiscal Year

    Financial Results -- Second Quarter Fiscal Year 2008    -- Net sales from continuing operations were $143.7 million, as compared       to $158.9 million for the second quarter of fiscal year 2007, a       decrease of $15.2 million or 9.6%.    -- Net loss was $400,000, or a loss of $0.01 per diluted share, as       compared to net income in the second quarter of fiscal year 2007 of       $1.6 million, or $.04 per diluted share.    -- Net income from continuing operations for the second quarter was       $200,000, or $0.01 per diluted share, as compared to net income from       continuing operations in the second quarter of fiscal year 2007 of       approximately $1.5 million, or $0.04 per diluted share.    -- Earnings before interest, taxes, depreciation, amortization (EBITDA)       from continuing operations for the second quarter was $4.4 million as       compared to $7.3 million for the second quarter of fiscal year 2007, a       decrease of $2.9 million or 39.7%.  See "Use of Non-GAAP Financial       Information" below.    Financial Results -- Year to Date Fiscal Year 2008    -- Net sales from continuing operations in the first six months were       $280.7 million, as compared to $291.0 million for the first six months       of fiscal year 2007, a decrease of $10.3 million or 3.5%.    -- Net income from continuing operations during the first six months was       $2.1 million, or $0.06 per diluted share, as compared to net income       from continuing operations in the first six months of fiscal year 2007       of approximately $2.0 million, or $0.06 per diluted share.    -- Earnings before interest, taxes, depreciation, amortization (EBITDA)       from continuing operations for the first six months of fiscal year 2008       was $11.7 million as compared to $12.7 million for the first six months       of fiscal year 2007, a decrease of $1.0 million or 7.9%.  See "Use of       Non-GAAP Financial Information" below.

Cary Deacon, Chief Executive Officer, commented, "We experienced adifficult second quarter. Our shortfall from operating expectations wasprimarily in two areas. BCI's results were disappointing relative to budget,as we consolidated its operations and work towards defining its niche in theDVD sector. In the quarter, our distribution business experienced a year overyear decline of approximately $6 million related to the strategic decision toexit an unprofitable major studio DVD contract with a retail partner. As well,CompUSA store closings resulted in a decline of approximately a $5 million ona year over year basis in our distribution business.

Additionally, we went live on September 1, 2007 with Phase 1, thefinancial, sales and distribution and procurement portions of our new ERPsystem. In its early stages the system implementation was a massiveundertaking that commanded the total organization's attention. We believe thatthe system is now stabilized and are moving forward with the implementation ofPhase 2, the transportation and warehousing portion."

Deacon continued, "Although the second quarter was difficult, we remainoptimistic about the third and fourth quarters of this fiscal year. Ourpreliminary October sales results are encouraging. We continue to work towardsgetting BCI on track."

Business Segment Highlights

Publishing Segment

The publishing segment includes the results of the wholly-ownedsubsidiaries FUNimation, Encore and BCI. For the second quarter endedSeptember 30, 2007, the publishing segment's net sales, before inter-companyeliminations, decreased 22.1% to $27.0 million, as compared to net sales of$34.7 million for the same period last year. See "Use of Non-GAAP FinancialInformation" below.

FUNimation and Encore met sales and profit expectations in the quarter.The strength of FUNimation's product release schedule for fiscal year 2008 isprimarily in the first and fourth quarters. As a result, FUNimation accountedfor most of the Publishing segment's sales decline on a year over year basis.

BCI's sales declined as compared to last year and it incurred a quarterlyloss. During the quarter the Company announced the relocation of BCI'scorporate headquarters and the cost of this office consolidation was mainlyincurred in the second quarter. The Company continues to focus its efforts toreposition BCI into the Latino and budget categories.

Distribution Segment

The distribution segment distributes PC software, DVD video, video gamesand accessories. For the second quarter ended September 30, 2007, thedistribution segment's net sales, before inter-company eliminations, decreased6.5% to $133.4 million, as compared to net sales of $142.6 million for thesame period last year. See "Use of Non-GAAP Financial Information" below.

Distribution net sales were negatively impacted by approximately $11million due to store closings at CompUSA and our strategic decision to exitthe unprofitable major studio DVD business with a key customer. Softwaresales remained relatively constant as compared to the comparable period of the2007 fiscal year.

ERP Implementation

As previously disclosed, the Company is undergoing an implementation of anew Enterprise Resource Planning (ERP) system. This ERP system is beinglicensed from SAP Americas, Inc. and the Company is utilizing DeloitteConsulting LLP as its implementation partner. When the implementation of thisERP system is completed, it will operate all of the Company's financialreporting, manufacturing and warehousing processes. The first of two phasesof this ERP system implementation went live in September 2007. Phase two,which involves warehouse and transportation management systems, is anticipatedto be installed in the summer of fiscal year 2009.

Reid Porter, Executive Vice President and Chief Financial Officer,commented, "Although the implementation of this ERP system has beenchallenging, the Company has continued to operate effectively despite thesignificant time, attention and resources that have been focused on this firstphase. We are already seeing an enhanced flow of information coming from thisnew system."

Discontinued Operations

In connection with the Company's May 31, 2007, sale of its independentmusic business to Koch Entertainment, the Company received $6.5 million incash at closing and retained trade receivables valued at approximately $11million. Collection of these trade receivables has met the Company'sexpectations. Net proceeds from this transaction and the collection ofassociated receivables are being used to pay down the Company's debt.Discontinued operations realized a net loss of $597,000, or $.02 per dilutedshare during the second quarter of fiscal year 2008. The Company anticipatesincurring modest additional losses from discontinued operations for theremainder of the year. The Company anticipates a net gain from the sale ofthe independent music business, offset by discontinued operating losses, to bein excess of $2 million in fiscal year 2008.

Outlook

Based on the operating results for the first six months and a cautiousapproach in the retail marketplace over the next several months, the Companyis updating its fiscal year 2008 guidance as follows:

    -- The Company anticipates consolidated net sales of between $620 million       and $640 million.    -- Earnings before interest, taxes, depreciation and amortization (EBITDA)       from continuing operations are expected to be between $29 million and       $31 million.    -- Anticipated net income of between $9 million and $10 million.    -- Anticipated depreciation and amortization expense of approximately $10       million.    -- Anticipated share-based compensation expense of approximately $1       million.    -- Cash flow from operations is anticipated to again be positive for       fiscal year 2008 results.

Use of Non-GAAP Financial Information

In evaluating our financial performances and operating trends, managementconsiders information concerning our net sales before inter-companyeliminations and earnings before interest, taxes, depreciation andamortization that are not calculated in accordance with generally acceptedaccounting principles ("GAAP") in the United States of America. The Company'smanagement believes these non-GAAP measures are useful to investors becausethey provide supplemental information that facilitates comparisons to priorperiods and for the evaluation of financial results. Management uses thesenon-GAAP measures to evaluate its financial results, develop budgets andmanage expenditures. The method the Company uses to produce non-GAAP resultsis not computed according to GAAP, is likely to differ from the methods usedby other companies and should not be regarded as a replacement forcorresponding GAAP measures. Investors are encouraged to review thereconciliation of these non-GAAP financial measures to the comparable GAAPresults, which is attached to this release and can also be found on theCompany's web site at .

Conference Call

The Company will host a conference call at 10:00 a.m. ET, Thursday,November 8, 2007, to discuss the Company's results. The conference call canbe accessed by dialing (866)356-3093, conference participant passcode"48293213", ten minutes prior to the scheduled start time. In addition, thiscall will be simultaneously broadcast live over the internet and can beaccessed in the "Investors" section of the Company's web site located at. Those wishing to access the call through the internetshould go to the Company's web site 15 minutes prior to the start time toregister and download any necessary software needed to listen to the call. Areplay of the conference call will be available at the Company's web sitefollowing the call's completion.

About Navarre Corporation

Navarre Corporation (Nasdaq: - ) is a publisher and distributor ofphysical and digital home entertainment and multimedia products, including PCsoftware, DVD video, video games and accessories. Navarre licenses andpublishes home entertainment and multimedia content through its Encore, BCI,and FUNimation subsidiaries and has established distribution relationshipswith customers across a wide spectrum of retail channels which includes massmerchants, discount retailers, wholesale clubs, office and electronicsuperstores, military sales and e-tailers nationwide. Navarre was founded in1983 and is headquartered in New Hope, Minnesota. Additional information isavailable at .

Safe Harbor

The statements in this press release that are not strictly historical are"forward-looking" statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995 and are intended to be covered by the safeharbors provided therein. The forward-looking statements are subject to risksand uncertainties, and the actual results that the Company achieves may differmaterially from these forward-looking statements due to such risks anduncertainties, including, but not limited to: the Company's revenues beingderived from a small group of customers; the seasonal nature of the Company'sbusiness; the potential for the Company to incur significant additional costsand to experience operational and logistical difficulties in connection withits implementation of a new ERP system; pending litigation or regulatoryinvestigation of the Company may result in significant costs; Company'sdependence on significant vendors; uncertain growth in the publishing segment;the Company's ability to meet significant working capital requirements relatedto distributing products; and the Company's ability to compete effectively inthe highly competitive distribution and publishing industries. In addition tothese, a detailed statement of risks and uncertainties is contained in theCompany's reports to the Securities and Exchange Commission, including inparticular the Company's Form 10-K for the year ended March 31, 2007, as wellas its other SEC finings and public disclosures.

Investors and shareholders are urged to read this press release carefully.The Company can offer no assurances that any projections, assumptions orforecasts made or discussed in this press release will be met, and investorsshould understand the risks of investing solely due to such projections. Theforward-looking statements included in this press release are made only as ofthe date of this report and the Company undertakes no obligation to updatethese forward-looking statements to reflect subsequent events orcircumstances.

Investors and shareholders may obtain free copies of the public filingsthrough the website maintained by the SEC at or at one ofthe SEC's other public reference rooms in Washington D.C., New York, New Yorkor Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for furtherinformation with respect to the SEC's public reference rooms.

                             NAVARRE CORPORATION                    Consolidated Statements of Operations                   (In thousands, except per share amounts)                                 (Unaudited)                            Three Months Ended        Six Months Ended                               September 30,            September 30,                             2007         2006        2007         2006    Net sales             $143,715     $158,893     $280,737     $291,065    Cost of sales     (exclusive of     depreciation and     amortization)         121,654      130,627      234,693      240,009    Gross profit            22,061       28,266       46,044       51,056    Operating expenses:      Selling and marketing  6,685        7,695       13,599       14,232      Distribution and       warehousing           3,100        2,981        5,343        5,427      General and       administrative        8,298        8,294       16,248       16,078      Bad debt expense          30        2,362           85        2,819      Depreciation and       amortization(1)       2,323        2,683        4,541        5,307    Total operating     expenses               20,436       24,015       39,816       43,863    Income from operations   1,625        4,251        6,228        7,193    Other income (expense):      Interest expense      (1,405)      (2,007)      (3,079)      (3,927)      Interest income           56           92          124          211      Warrant expense            -          173            -         (251)      Other income (expense),       net                     148           20          371          102    Net income before income     tax                       424        2,529        3,644        3,328    Income tax expense        (202)      (1,013)      (1,516)      (1,336)    Net income (loss) from     continuing operations     222        1,516        2,128        1,992    Discontinued operations,     net of tax      Gain on sale of       discontinued       operations               (3)           -        4,644            -      Income (loss) from       discontinued       operations             (594)          96       (1,703)         254    Net income               $(375)      $1,612       $5,069       $2,246    Basic earnings (loss)     per common share:      Continuing operations   $.01         $.05         $.06         $.06      Discontinued       operations            $(.02)          $-         $.08           $-      Net income             $(.01)        $.05         $.14         $.06    Diluted earnings per     common share:      Continuing operations   $.01         $.04         $.06         $.06      Discontinued       operations            $(.02)          $-         $.08           $-      Net income             $(.01)        $.04         $.14         $.06    Weighted average shares     outstanding:      Basic                 36,110       35,735       36,048       35,691      Diluted               36,303       36,201       36,289       36,184    (1) Depreciation and amortization expense in the three months ended        September 30, 2007 and 2006 includes $894,000 and $1.5 million,        respectively, and in the six months ended September 30, 2007 and 2006        includes $1.8 million and $3.0 million, respectively, of amortization        expense related to the FUNimation acquisition.                             NAVARRE CORPORATION                     Consolidated Condensed Balance Sheet                                (In thousands)                                 (Unaudited)                                  September 30,   September 30,   March 31,                                      2007            2006          2007    Assets    Current assets:      Cash and cash equivalents         $--          $8,406          $966      Receivables, net               84,077          91,237        70,609      Inventories                    59,192          57,647        36,791      Other                          25,251          23,150        20,889      Assets from discontinued       operations - current             143          26,103        21,889    Total current assets            168,663         206,543       151,144    Property and equipment, net      16,882          11,256        14,042    Other assets                    127,253         126,480       122,696    Assets from discontinued     operations - non current            --             400           343    Total assets                   $312,798        $344,679      $288,225    Liabilities and shareholders'     equity    Current liabilities:      Note payable -- line of       credit                      $ 43,049             $--      $ 38,956      Note payable -- short-term        150           5,000           150      Accounts payable              111,015         118,028        87,145      Other                          21,574          13,738        13,680      Liabilities from discontinued       operations -- current            796          17,234        12,748    Total current liabilities       176,584         154,000       152,679    Long-term liabilities:      Note payable -- long-term       9,670          72,630        14,850      Other                           7,155           7,050         7,245    Total liabilities               193,409         233,680       174,774      Shareholders' equity          119,389         110,999       113,451    Total liabilities and     shareholders' equity          $312,798        $344,679      $288,225                             NAVARRE CORPORATION               Consolidated Condensed Statements of Cash Flows                                (In thousands)                                 (Unaudited)                                                         Six Months Ended                                                          September 30,                                                       2007           2006    Net cash used in operating activities            $(9,578)         $(979)    Net cash used in investing activities             (9,313)        (3,749)    Net cash provided by (used in) financing     activities                                        4,847         (2,316)    Net cash provided by discontinued operating     activities                                        6,578          1,154    Proceeds from sale on discontinued operations      6,500             --    Net increase (decrease) in cash                     (966)        (5,890)    Cash at beginning of period                          966         14,296    Cash at end of period                                $--         $8,406                             NAVARRE CORPORATION                           Supplemental Information                                (In thousands)                                 (Unaudited)    Reconciliation of Net Sales Before Inter-Company Eliminations to GAAP Net    Sales and Business Segment Information            Three Months Ended September 30, Six Months Ended September 30,                 2007    %      2006     %      2007     %     2006    %    Net sales:      Distri-       bution  $133,391 83.1% $142,638  80.4% $257,281 82.0% $261,222 81.1%      Publi-       shing     27,043 16.9%   34,705  19.6%   56,666 18.0%   60,743 18.9%    Net sales     before     inter-     company     elimi-     nations    160,434        177,343         313,947        321,965      Inter-       company      elimi-       nations  (16,719)       (18,450)        (33,210)       (30,900)    Net sales     as     reported  $143,715       $158,893        $280,737       $291,065    Income from     continuing     operations:      Distri-       bution      $377          $(110)         $1,951           $823      Publi-       shing      1,248          4,361           4,277          6,370    Consolidated     income from     continuing     operations  $1,625         $4,251          $6,228         $7,193    Reconciliation of Net Income (Loss) from Continuing Operations to EBITDA                             Three Months Ended          Six Months Ended                                September 30,               September 30,                              2007        2006          2007          2006    Net income from     continuing operations,     as reported              $222       $1,516        $2,128        $1,992      Interest expense       (income), net         1,349        1,915         2,955         3,716      Tax expense              202        1,013         1,516         1,336      Depreciation and       amortization          2,323        2,683         4,541         5,307      Share-based       compensation            279          156           567           300    EBITDA                  $4,375       $7,283       $11,707       $12,651