911650--6/9/2009--NAVARRE_CORP

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{product, market, service}

{stock, price, share}

{condition, economic, financial}

{capital, credit, financial}

{operation, natural, condition}

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Risks Relating To Our Business And Industry We derive a substantial portion of our total net sales from two customers. A reduction in sales to either of these customers, or another significant customer, could have a material adverse effect on our net sales and profitability. The loss of a significant vendor or manufacturer or a decline in the popularity of its products could negatively affect our product offerings and reduce our net sales and profitability. Pending SEC investigation or litigation may subject us to significant costs, judgments or penalties and could divert management s attention. Our revenues are dependent on consumer preferences and demand, which can change at any time. A continued deterioration in the businesses of significant customers, due to weak economic conditions, could harm our business. Our business is seasonal and variable in nature and, as a result, the level of sales during our peak season could adversely affect our results of operations and liquidity. A substantial portion of FUNimation s revenues are derived from a small number of licensed properties and a small number of licensors and FUNimation s content is highly concentrated in the FUNimation s revenues are substantially dependent on television exposure for its licensed properties. Technology developments, particularly in the electronic downloading arena, may adversely affect our net sales, margins and results of operations. Increased counterfeiting or piracy may negatively affect the demand for our home entertainment products. We may not be able to successfully protect our intellectual property rights. The loss of key personnel could affect the depth, quality and effectiveness of our management team. In addition, if we fail to attract and retain qualified personnel, the depth, quality and effectiveness of our management team and employees could be negatively affected. If we fail to meet our significant working capital requirements or if our working capital requirements increase substantially, our business and prospects could be adversely affected. Product returns or inventory obsolescence could reduce our sales and profitability or negatively impact our liquidity. We are subject to the risk that our inventory values may decline due to, among other things, changes in demand and that protective terms under our supplier agreements may not adequately cover the decline in values, which could result in lower gross margins or inventory write-downs. Further impairment in the carrying value of our assets could negatively affect our consolidated results of operations and net worth. We have significant credit exposure and negative product demand trends or other factors could cause us significant credit loss. We may not be able to adequately adjust our cost structure in a timely fashion in response to a decrease in net sales, which may cause our profitability to suffer. Our distribution and publishing businesses operate in highly competitive industries and compete with large national firms. Further competition, among other things, could reduce our sales volume and margins. We depend on third party shipping and fulfillment companies for the delivery of our products. We depend on a variety of systems for our operations, and a failure of these systems could disrupt our business and harm our reputation and net sales and negatively impact our results of operations. Any future acquisitions could result in disruptions to our business by, among other things, distracting management time and diverting financial resources. Further, if we are unsuccessful in integrating acquired companies into our business, it could materially and adversely affect our financial condition and operating results. Interruption of our business or catastrophic loss at any of our facilities could lead to a curtailment or shutdown of our business. Future terrorist or military actions could result in disruption to our operations or loss of assets. The level of our indebtedness could adversely affect our financial condition. Our outstanding indebtedness bears interest at variable rates. Any increase in interest rates will reduce funds available to us for our operations and future business opportunities and could adversely affect our leveraged capital structure. We may be unable to generate sufficient cash flow to service our debt obligations. We may be able to incur additional indebtedness, which could further exacerbate the risks associated with our current indebtedness level. Our credit agreement contains significant restrictions that limit our operating and financial flexibility. Risks Relating to Our Common Stock Our common stock price has been volatile. Fluctuations in our stock price could impair our ability to raise capital and make an investment in our securities undesirable. If we fail to meet the Nasdaq Global Market listing requirements, our common stock could be delisted. The exercise of outstanding warrants and options may adversely affect our stock price. Our anti-takeover provisions, our ability to issue preferred stock and our staggered board may discourage takeover attempts that could be beneficial for our shareholders.

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911650--6/9/2009--NAVARRE_CORP_/MN/