NexCen Brands, the owner of The Athlete's Foot franchise, said that in preparing its first quarter 2008 10Q and following the appointment of its new CFO, it found “there is substantial doubt about its ability to continue as a going concern.” It also announced that pending completion of an independent review, substantial doubt also may have existed at the time the company filed its 2007 10K. As a result, NexCen Brands will delay the filing of its first quarter 2008 10-Q and expects to amend its 2007 10-K.
NexCen also announced that the company is actively exploring all strategic alternatives to enhance its liquidity, including potential capital market transactions, the possible sale of one or more of its businesses, and discussions with the companys lender. In addition, the company will take immediate steps to reduce operating expenses.
The company conducted a review of its prior public filings, including the terms of the January 2008 amendments to its bank credit facility. NexCens bank credit facility with BTMU Capital Corporation was amended in January 2008 at the time of the acquisition of the Great American Cookie business. The amendments allowed NexCen to borrow an additional $70 million to finance a portion of the acquisition purchase price and included an accelerated-redemption feature applicable to $35 million of the $70 million.
Specifically, the amendments require that the $35 million be reduced to $5 million by October 17, 2008. The company concluded that disclosures regarding the accelerated-redemption feature of its bank credit facility, as well as other changes that reduced the amount of cash available to the company for general use, were not contained in the companys 2007 Annual Report on Form 10-K or the January 29, 2008 Current Report on Form 8-K filed in connection with the acquisition of Great American Cookies.
The company is continuing to review all of the relevant facts and circumstances. To assist in evaluating and resolving these matters, the audit committee of the companys Board of Directors has retained independent counsel to conduct an independent review of the situation. The company has concluded that its 2007 financial statements should no longer be relied upon and no reliance should be placed upon KPMGs audit report dated March 20, 2008, or its report dated March 20, 2008 on the effectiveness of internal control over financial reporting as of December 31, 2007, as contained in the companys 2007 10-K.
The company will determine what changes need to be made to its 2007 10-K and expects the changes may include additional footnote disclosure in the audited financial statements regarding amendments to its bank credit facility, footnote disclosure regarding going concern considerations, and updates to certain other disclosures relating to the amendments to the bank credit facility and the companys liquidity and financial condition. KPMG is also expected to amend its audit report dated March 20, 2008. However, the company does not expect there to be any changes to its 2007 financial results.
The company is notifying The Nasdaq Stock Market that it will not timely file its first quarter 2008 10-Q with the Securities Exchange Commission. As a result of the delayed filing, NexCen will not be in compliance with the Nasdaq Marketplace Rule 4310(c)(14) that requires that the company timely file all required reports with the SEC to satisfy continued listing.
The company intends to file its first quarter 2008 10-Q and to amend its 2007 10-K, to the extent required, as promptly as possible following the resolution of the aforementioned matters.
Preliminary Selected First Quarter 2008 Operating Results
The company also reported today the following preliminary financial results for the first quarter ended March 31, 2008. First quarter 2008 results reflect the significant number of acquisitions completed during 2007 and the acquisitions of Shoebox
The company expects to report revenues of $13.9 million in the first quarter of 2008 compared with $3.9 million in the first quarter of 2007 and $10.2 million in the fourth quarter of 2007.
Additional preliminary first quarter results include:
* Royalty revenue of $5.6 million versus $2.2 million in the first quarter last year.
* Licensing revenue of $3.7 million versus $1.6 million in the prior year first quarter.
* Manufacturing (cookie-dough) revenue of $3.1 million from Great American Cookies which was acquired in January 2008.
* Franchisee fee revenue of $1.6 million versus $0.1 million in the first quarter last year.
* The pipeline of letters of intent for new franchise stores grew during the first quarter from 151 to 410 stores.
* Total store count at the end of the first quarter was 1,905 stores.