NexCen Brands, the parent of The Athlete's Foot, reported total revenues decreased 1% in the second quarter ended June 30, 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.

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.”