NexCen Brands Reports Significant Improvement in Operating Income in Second Quarter 2009

http://www.businesswire.com/news/home/20091105006430/en

Second Consecutive Quarter of Operating Income and Positive Cash Flow from
Operations

Operating Income of $1.6 Million in Second Quarter 2009 vs. Operating Loss of
$113.4 Million in Second Quarter 2008

Cash Generated from Operations of $0.2 Million in Second Quarter 2009 vs. Cash
Used in Operations of $1.4 million in Second Quarter 2008

Loss from Continuing Operations of ($0.01) Per Diluted Share in Second Quarter
2009 vs. ($1.99) Per Diluted Share in Second Quarter 2008
NEW YORK--(Business Wire)--
NexCen Brands, Inc. (PINK SHEETS: NEXC) today reported unaudited financial
results for the second quarter of 2009, and announced that it has filed its
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 with
the Securities and Exchange Commission (SEC).

Second Quarter 2009 Operating Results and Financial Highlights

The operating results and financial highlights for the second quarter ended June
30, 2009 are as follows:

* Total revenues in the second quarter of 2009 decreased 1% to $11.8 million,
compared to $11.9 million in the second quarter of 2008. The slight decrease in
revenues is the result of a decline in royalty and factory revenues due to
current economic conditions, partially offset by an increase in franchise fee
revenues.
* Total operating expenses in the second quarter of 2009 decreased to $10.2
million from $125.3 million in the second quarter of 2008. Operating income in
second quarter of 2009 increased to $1.6 million from an operating loss of
$113.4 million in the second quarter of 2008. Loss from continuing operations in
the second quarter of 2009 narrowed to $0.8 million, or ($0.01) per fully
diluted share, from $112.8 million, or ($1.99) per fully diluted share, in the
second quarter of 2008.
* The results for the second quarter of 2008 included impairment charges related
to intangible assets of $109.7 million, $1.9 million in professional fees
related to special investigations, and $0.8 million in restructuring costs.
Excluding these special items specific to the events of 2008, adjusted operating
expenses for the second quarter of 2009 decreased 21%, or $2.7 million, from
adjusted operating expenses of $12.8 million for the second quarter of 2008.
Adjusted operating income for the second quarter of 2009 increased 286%, or $2.5
million, from an adjusted operating loss of $0.9 million for the second quarter
of 2008. Adjusted loss from continuing operations narrowed to $0.7 million, or
($0.01) per fully diluted share, compared to an adjusted loss from continuing
operations of $4.5 million, or ($0.08) per fully diluted share, in the second
quarter of 2008. See Table 4 for details regarding these non-GAAP adjustments.
* Cash generated from operations was $0.2 million in second quarter of 2009
compared to cash used in operations of $1.4 million in second quarter of 2008.
* The Company had total cash of $8.0 million as of June 30, 2009, compared to
total cash of $8.3 million at March 31, 2009 and $8.3 million at December 31,
2008.
* The Company`s outstanding debt balance was $142.6 million at June 30, 2009,
compared to $142.5 million at March 31, 2009 and $142.3 million at December 31,
2008.
* The Company`s average effective interest rate for its credit facility was 6.6%
in the second quarter of 2009, compared to 6.8% in the first quarter of 2009 and
8.6% in the fourth quarter of 2008. The Company`s interest expense was $2.7
million in the second quarter of 2009, compared to $2.8 million in the first
quarter of 2009 and $3.1 million in the fourth quarter of 2008.
* Total franchised locations were 1,770 stores at June 30, 2009 versus 1,881
stores at June 30, 2008. The net decrease of 111 stores, or 6%, reflects
closures, initiated either by the franchisee or the Company, of underperforming
and non-compliant stores.
* The Company executed franchise agreements for 20 new franchise units across
its franchise businesses in the second quarter of 2009, versus franchise
agreements for 24 new franchise units in the first quarter of 2009.
* Deferred revenue related to the pipeline for franchise stores to be opened
pursuant to executed letters of intent and franchise agreements was
approximately $2.6 million at June 30, 2009, a decrease of approximately $0.4
million or 14% from approximately $3 million at March 31, 2009. Total deferred
revenue, including deferred revenue related to vendor rebates, was $2.9 million
at June 30, 2009.

Kenneth J. Hall, Chief Executive Officer, stated, "We are pleased with our
performance during the second quarter. This is the second consecutive quarter in
which we generated operating income and positive cash flow from operations since
we implemented our strategic plan to turn around our business. We maintained
revenues at prior-year levels, despite the dramatic drop in mall traffic and
retail spending. We also realized improvements in our financial results by
right-sizing our operating expenses and improving efficiencies in our business.
We are heartened that our strategic plan is yielding a positive impact on our
results."

Six Months Operating Results

The operating results for the six months ended June 30, 2009 are as follows:

* Total revenues for the six months ended June 30, 2009 increased 7% to $23.7
million, compared to $22.2 million for the same period in 2008. The increase in
revenues is primarily the result of full quarter revenues for Great American
Cookies acquired on January 29, 2008.
* Total operating expenses for the six months ended June 30, 2009 decreased to
$20.3 million from $138.1 million for the same period in 2008. Operating income
for the six months ended June 30, 2009 increased to $3.4 million for the six
months ended June 30, 2009 from an operating loss of $115.9 million for the same
period in 2008. Loss from continuing operations for the six months ended June
30, 2009 narrowed to $1.5 million, or ($0.03) per fully diluted share, from
$119.2 million, or ($2.10) per fully diluted share, for the same period in 2008.

* The results for the six months ended June 30, 2008 included impairment charges
related to intangible assets of $109.7 million, $1.9 million in professional
fees related to special investigations, and $0.8 million in restructuring costs.
Excluding these special items specific to the events of 2008, adjusted operating
expenses for the six months ended June 30, 2009 decreased 21%, or $5.4 million,
to $20.2 million from adjusted operating expenses of $25.6 million for the same
period in 2008. Adjusted operating income for the six months ended June 30, 2009
increased 201%, or $6.9 million, to $3.5 million compared to an adjusted
operating loss of $3.4 million for the same period in 2008. Adjusted loss from
continuing operations for the six months ended June 30, 2009 narrowed to $1.4
million, or ($0.03) per fully diluted share, from an adjusted loss from
continuing operations of $9.7 million, or ($0.17) per fully diluted share, for
the same period in 2008. See Table 4 for details regarding these non-GAAP
adjustments.
* Cash flow from operations for the six months ended June 30, 2009 improved by
$6.2 million to $0.6 million of cash generated from operations, compared to cash
used in operations of $5.6 million for the six months ended June 30, 2008.

Mr. Hall concluded, "NexCen Brands is operating as a fundamentally stronger
business than a year ago. We believe that through the execution of our
turnaround plan, we have been able to weather both the downturn in the economy
and the internal challenges that have impacted our Company. In 2009, we have
continued to improve our operations and make investments in our business and
brands, while significantly reducing expenses. We also have completed key hires
to bolster our management team. Further, we have continued to enhance our
offerings to franchisees, such as opening a new `Innovation Lab` with additional
capabilities to produce new ice cream, cookies and pretzels products for each of
our QSR franchised brands. Despite our progress to date, we recognize that the
continued difficult macroeconomic environment, including the lack of readily
available financing for franchisees, has affected our business and our financial
results, and may continue to do so. As such, we will maintain a conservative
approach to managing our expenses, while at the same time, strive to capitalize
on innovation and expansion opportunities. We also understand that we must
further bolster our financial condition and address our debt level. In short, we
are encouraged by our financial performance through the first half of 2009, but
not complacent."

Conference Call Information

The Company will be holding a conference call today at 5:00 pm ET to review its
financial results for the second quarter of 2009. The conference call may be
accessed by dialing 800-944-8766 or 317-713-0002, access code: 27689. A replay
of the call will be available through November 13, 2009, by dialing
1-866-281-6782, access code: 154227. The broadcast will be available through the
`Investor Relations` link at http://www.nexcenbrands.com/ and will be archived
online shortly after the conference call until December 31, 2009.

The Company`s Quarterly Report on Form 10-Q for the quarterly period ended June
30, 2009 is available on the Company`s website at http://www.nexcenbrands.com,
under the "Investor Relations" tab, or through the SEC`s website at
http://www.sec.gov.

About NexCen Brands, Inc.

NexCen Brands, Inc. is a strategic brand management company with a focus on
franchising. It owns a portfolio of franchise brands that includes two retail
franchise concepts: TAF and Shoebox New York®, as well as five quick service
restaurant (QSR) franchise concepts: Great American Cookies®, MaggieMoo's®,
Marble Slab Creamery®, Pretzelmaker® and Pretzel Time®. The brands are managed
by NexCen Franchise Management, Inc., a subsidiary of NexCen Brands.

Forward-Looking Statement Disclosure

This press release contains "forward-looking statements," as such term is used
in the Securities Exchange Act of 1934, as amended.Such forward-looking
statements include those regarding the expected timing for filing additional SEC
reports, expectations for the future performance of the Company`s brands and
expectations regarding the impact of recent developments on its business.When
used herein, the words "anticipate," "believe," "estimate," "intend," "may,"
"will," "expect" and similar expressions as they relate to the Company or its
management are intended to identify such forward-looking
statements.Forward-looking statements are based on current expectations and
assumptions, which are subject to risks and uncertainties.They are not
guarantees of future performance or results.The Company's actual results,
performance or achievements could differ materially from the results expressed
in, or implied by, these forward-looking statements.Factors that could cause or
contribute to such differences include: (1) the Company`s efforts to focus on
the franchise business as its core business may not be successful and may not
improve the performance of the Company; (2) economic conditions may deteriorate
or fail to materially improve in international and domestic markets, which could
negatively impact the Company`s business and financial performance, (3) the
Company`s inability to file its financial reports within the prescribed
timeframes and the failure to hold an annual meeting of stockholders for the
fiscal year ended December 31, 2007 may subject the Company to governmental
investigations or third-party claims, (4) past delays in the Company`s
compliance with the Securities and Exchange Commission`s filing requirements may
negatively impact the Company, (5) increases in LIBOR, which affects the
interest rate on approximately 60% of the debt outstanding under the Company`s
current bank credit facility, will increase its interest expenses, (6) the
substantial debt service obligations and extensive covenants in the Company`s
current bank credit facility may restrict its ability to respond to changing
market conditions, and (7) other factors discussed in the Company`s filings with
the Securities and Exchange Commission. The Company undertakes no obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.

Table 1
NEXCEN BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE DATA)

Three Months Ended Six Months Ended
June 30, June 30,
2009 2008 2009 2008
Revenues:
Royalty revenues $ 6,144 $ 6,452 $ 11,986 $ 11,811
Factory revenues 4,320 4,761 8,777 7,736
Franchise fee revenues 1,066 397 2,396 1,980
Licensing and other revenues 251 314 582 622
Total revenues 11,781 11,924 23,741 22,149

Operating Expenses:
Cost of sales (2,670 ) (2,974 ) (5,507 ) (5,296 )
Selling, general and administrative expenses:
Franchising (3,470 ) (4,335 ) (6,561 ) (8,663 )
Corporate (1,912 ) (3,468 ) (3,996 ) (7,834 )
Professional fees:
Franchising (560 ) (354 ) (970 ) (630 )
Corporate (652 ) (1,010 ) (1,489 ) (2,008 )
Special investigations (52 ) (1,932 ) (85 ) (1,932 )
Impairment of intangible assets - (109,733 ) - (109,733 )
Depreciation and amortization (863 ) (674 ) (1,725 ) (1,165 )
Restructuring charges - (815 ) - (815 )
Total operating expenses (10,179 ) (125,295 ) (20,333 ) (138,076 )

Operating income (loss) 1,602 (113,371 ) 3,408 (115,927 )

Non-Operating income (expense):
Interest income 47 84 102 334
Interest expense (2,749 ) (2,472 ) (5,583 ) (4,751 )
Financing charges 31 (889 ) (2 ) (926 )
Other income (expense), net 372 (193 ) 720 (676 )
Total non-operating expense (2,299 ) (3,470 ) (4,763 ) (6,019 )

Loss from continuing operations before income taxes (697 ) (116,841 ) (1,355 ) (121,946 )
Income taxes:
Current (81 ) (107 ) (155 ) (184 )
Deferred - 4,126 - 2,936
Loss from continuing operations (778 ) (112,822 ) (1,510 ) (119,194 )
Income (loss) from discontinued operations, net of taxes of $0, $14,916, $0, $15,083, respectively 362 (83,027 ) 229 (81,960 )
Net loss $ (416 ) $ (195,849 ) $ (1,281 ) $ (201,154 )

Loss per share (basic and diluted) from continuing operations $ (0.01 ) $ (1.99 ) $ (0.03 ) $ (2.10 )
Income (loss) per share (basic and diluted) from discontinued operations 0.00 (1.47 ) 0.00 (1.45 )
Net loss per share - basic and diluted $ (0.01 ) $ (3.46 ) $ (0.03 ) $ (3.55 )

Weighted average shares outstanding - basic and diluted 56,952 56,621 56,812 56,444

Table 2
NEXCEN BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(IN THOUSANDS)

Six Months Ended
June 30,
2009 2008
Cash flow from operating activities:
Net loss $ (1,281 ) $ (201,154 )
Add: net (income) loss from discontinued operations (229 ) 81,960
Net loss from continuing operations (1,510 ) (119,194 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Impairment of intangible assets - 109,733
Restructuring - 443
Depreciation and amortization 1,793 1,165
Stock based compensation 288 2,230
Deferred income taxes - (2,936 )
Unrealized (gain) loss on investment in joint venture (260 ) 220
Amortization of debt discount 274 224
Amortization of deferred financing costs 483 845
Accrued interest on Deficiency Note 1,109 -
Changes in assets and liabilities, net of acquired assets and liabilities:
Decrease (increase) in trade receivables, net of allowances 1,459 (1,193 )
(Increase) decrease in other receivables (147 ) 1,129
(Increase) decrease in inventory (36 ) 410
Decrease (increase) in prepaid expenses and other assets 685 (1,070 )
(Decrease) increase in accounts payable and accrued expenses (2,416 ) 2,795
(Decrease) increase in restructuring accruals (146 ) 327
Decrease in deferred revenues (1,161 ) (637 )
Net cash provided by (used in) operating activities from continuing operations 415 (5,509 )
Net cash provided by (used in) operating activities from discontinued operations 229 (127 )
Net cash provided by (used in) operating activities 644 (5,636 )

Cash flows from investing activities:
Decrease in restricted cash 190 5,151
Purchases of property and equipment (185 ) (477 )
Investment in joint venture - (725 )
Purchase of trademarks, including registration costs - (46 )
Distributions from joint venture - 216
Acquisitions, net of cash acquired (131 ) (95,000 )
Cash used in discontinued operations for investing activities - (765 )
Net cash provided by (used in) investing activities (126) (91,646 )

Cash flows from financing activities:
Proceeds from debt borrowings - 70,000
Financing costs - (1,670 )
Principal payments on debt (774 ) (3,918 )
Proceeds from the exercise of options and warrants - 5
Cash used in discontinued operations for financing activities - (1,100 )
Net cash (used in) provided by financing activities (774 ) 63,317
Net decrease in cash and cash equivalents (256 ) (33,965 )
Cash and cash equivalents, at beginning of period 8,293 46,569
Cash and cash equivalents, at end of period $ 8,037 $ 12,604
Cash paid for interest $ 4,770 $ 4,862
Cash paid for taxes $ 203 $ 135

Table 3
NEXCEN BRANDS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(IN THOUSANDS EXCEPT SHARE DATA)

June 30, December 31,
2009 2008

(Unaudited)
ASSETS
Cash and cash equivalents $ 8,037 $ 8,293
Trade receivables, net of allowances of $1,469 and $1,367, respectively 4,158 5,617
Other receivables 940 834
Inventory 1,268 1,232
Prepaid expenses and other current assets 1,951 2,439
Total current assets 16,354 18,415

Property and equipment, net 3,278 4,395
Investment in joint venture 389 87
Trademarks and other non-amortizable intangible assets 78,422 78,422
Other amortizable intangible assets, net of amortization 5,668 6,158
Deferred financing costs and other assets 4,816 5,486
Long-term restricted cash 740 940
Total assets $ 109,667 $ 113,903

LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable and accrued expenses $ 7,692 $ 9,220
Restructuring accruals 7 153
Deferred revenue 2,884 4,044
Current portion of long-term debt, net of debt discount of $514 and $541, respectively 1,768 611
Acquisition related liabilities 1,330 4,689
Total current liabilities 13,681 18,717

Long-term debt, net of debt discount of $605 and $852, respectively 139,714 140,262
Acquisition related liabilities 298 480
Other long-term liabilities 3,506 3,937
Total liabilities 157,199 163,396

Commitments and Contingencies

Stockholders` deficit:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2009 and December 31, 2008, respectively - -
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 56,951,730 and 56,670,643 shares issued and outstanding as of June 30, 2009 and December 31, 2008, respectively 571 569
Additional paid-in capital 2,684,840 2,681,600
Treasury stock (1,757 ) (1,757 )
Accumulated deficit (2,731,186 ) (2,729,905 )
Total stockholders` deficit (47,532 ) (49,493 )
Total liabilities and stockholders` deficit $ 109,667 $ 113,903

Table 4
NEXCEN BRANDS, INC.

NON-GAAP ADJUSTMENTS (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE DATA)

Three Months Ended Six Months Ended
June 30, June 30,
2009 2008 2009 2008

Total revenues $ 11,781 $ 11,924 $ 23,741 $ 22,149

Total operating expenses (10,179 ) (125,295 ) (20,333 ) (138,076 )
Adjustments for special items:
Special investigations (1) 52 1,932 85 1,932
Impairment of intangible assets (2) - 109,733 - 109,733
Restructuring charges (3) - 815 - 815
Total operating expenses, as adjusted (10,127 ) (12,815 ) (20,248 ) (25,596 )

Operating income (loss), as adjusted 1,654 (891 ) 3,493 (3,447 )

Total non-operating expenses (2,299 ) (3,470 ) (4,763 ) (6,019 )

Loss from continuing operations before income taxes, as adjusted (645 ) (4,361 ) (1,270 ) (9,466 )

Income taxes (81 ) 4,019 (155 ) 2,752
Adjustments for deferred income taxes (2) - (4,126 ) - (2,936 )
Income taxes, as adjusted (81 ) (107 ) (155 ) (184 )
Loss from continuing operations, as adjusted $ (726 ) $ (4,468 ) $ (1,425 ) $ (9,650 )

Loss per share (basic and diluted) from continuing operations, as adjusted $ (0.01 ) $ (0.08 ) $ (0.03 ) $ (0.17 )

Weighted average shares outstanding - basic and diluted 56,952 56,621 56,812 56,444

(1) The Company incurred outside legal fees related to special investigations, namely, investigations conducted at the direction of the Audit Committee of the Board of Directors, the Company and the SEC, respectively, regarding the Company's public disclosures on May 19, 2008 of previously undisclosed terms of a January 2008 amendment of our credit facility.
(2) During 2008, the Company determined that it was necessary to evaluate goodwill and trademarks for impairment between annual tests due to a decline in the Company's stock price and deterioration of the economy. As a result, the Company recognized deferred tax benefit related to the reversal of deferred tax liabilities associated with the intangible assets.
(3) Restructuring charges relate primarily to employee separation benefits for employees terminated.

FD
Leigh Parrish/Stephanie Rich
212-850-5600

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