NexCen Brands, Inc., parent company to The Athlete's Foot reported a net loss for the third quarter of 2006 of 2 cents per share, or $822,000, compared to net loss of 2 cents per share, or $835,000 in the third quarter of 2005 and net loss of 3 cents per share or $1.5 million in the second quarter of 2006.
Included in the net loss for the third quarter of 2006 is loss from discontinued operations of $333,000 or ($0.01) per share and a charge for share-based compensation of $405,000 or ($0.01) per share.
Third quarter 2006 results also included other income of $415,000 associated with payments received in connection with a venture capital investment that was written off in 2002.
Through September 30, 2006, discontinued operations includes the Transportation, Mobile Government and Enterprise Mobility businesses of Aether Systems that were sold in 2004, and continuing operations includes NexCen's intellectual property and mortgage-backed securities businesses.
With the sale of all of NexCen's MBS in the fourth quarter of 2006 and its exit from the MBS business, MBS will be included in discontinued operations in future periods, and the Company's continuing operations will consist entirely of its IP business. In accordance with generally accepted accounting principles, NexCen will conform prior period financial statements to reclassify MBS as discontinued operations, so that all periods will be presented on a comparable basis.
“Our recent acquisitions of both UCC Capital and The Athlete's Foot, along with the exit from our MBS business, now solidly position us to expand our brand acquisition and management strategy,” said Robert D'Loren, NexCen's Chief Executive Officer. “We intend to aggressively seek acquisitions to quickly assemble a portfolio of recognizable consumer and franchise brands which will give us the opportunity to create value for our shareholders.”
At September 30, 2006, the Company's MBS portfolio had a fair value of $80.2 million, compared to a fair value of $87.4 million at June 30, 2006. The reduction in fair value during the quarter was attributable to principal repayments of approximately $7.7 million and an unrealized holding gain (which is recorded as part of other comprehensive income) of approximately $555,000. The Company previously reported that on October 31, 2006, it entered into forward sale agreements for the sale of its remaining MBS. A portion of the sales transactions have settled and the remaining sales will settle on November 21, 2006. As a result of the sales, the Company expects to receive net proceeds of approximately $78 million and realize a gain on sale of approximately $743,000 which will be reported in the fourth quarter. Before selling the MBS, NexCen received approximately $2.4 million in principal repayments on its MBS during October 2006. In future periods, interest income earned by the Company on its cash and short-term investments will be reported as non-operating interest income.
The Company reported net interest income from MBS of $1.3 million in the third quarter of 2006, as compared to $1.2 million in the third quarter of 2005 and $1.3 million in the second quarter of 2006. Operating expenses were $2.6 million in the third quarter of 2006, as compared to $2.9 million in the second quarter of 2006. The decrease in operating expenses of approximately $260,000, was primarily attributable to decreases of $709,000 in restructuring charges (relating to the acquisition of UCC Capital Corp. (“UCC”) that occurred during the second quarter of 2006), $203,000 in share-based compensation, and a net reduction of expenses relating to the Company's Baltimore office of $48,000, offset by an increase of $700,000 associated with having a full quarter of UCC expenses (versus approximately $200,000 of UCC expenses for the second quarter of 2006).
NEXCEN BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
Interest income from mortgage-
backed securities $ 921 $ 3,252 $ 4,477 $ 7,158
Interest income from cash and
cash equivalents 419 66 775 301
Interest expense on repurchase
agreements - (2,132) (1,354) (3,851)
Net interest income 1,340 1,186 3,898 3,608
Gain (loss) on sale of mortgage-
backed securities - (159) (490) 264
Other than temporary impairment
on mortgage-back securities - - (552) -
Other income 415 53 497 260
Advisory and other fees 54 - 65 -
Other operating income (loss) 469 (106) (480) 524
Operating expenses:
Selling, general and
administrative expenses (2,281) (1,036) (5,146) (4,146)
Investment advisor fees (44) (108) (134) (289)
Depreciation and amortization (207) (29) (256) (107)
Restructuring charge (80) - (869) 7
Total operating expenses (2,612) (1,173) (6,405) (4,535)
Operating loss (803) (93) (2,987) (403)
Non-operating income (expense)
Other interest income 314 331 856 901
Investment loss - - - (19)
Total non-operating income 314 331 856 882
Income (loss) from continuing
operations (489) 238 (2,131) 479
Discontinued operations
Loss on sale of discontinued
operations (333) (1,073) (344) (1,194)
Loss from discontinued
operations (333) (1,073) (344) (1,194)
Net loss (822) $ (835) (2,475) $ (715)
Other comprehensive income
(loss):
Unrealized holding gains
(losses) on investments
available for sale 555 (2,728) 555 (3,332)
Comprehensive loss $ (267) $ (3,563) $(1,920) $ (4,047)
Net income (loss) per share
(basic and diluted) from
continuing operations $ (0.01) $ 0.01 $ (0.04) $ 0.01
Loss on sale of discontinued
operations (0.01) (0.03) (0.01) (0.03)
Net loss per share (basic and
diluted) $ (0.02) $ (0.02) $ (0.05) $ (0.02)
Weighted average shares
outstanding
Basic 46,534 44,019 45,098 44,006
Diluted 46,534 44,019 45,098 44,006
