Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
8-K
CURRENT
REPORT PURSUANT
TO
SECTION 13 OR 15(D) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date
of
report (Date of earliest event reported): May 15, 2008
NEXCEN
BRANDS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction
of
Incorporation)
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000-27707
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20-2783217
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(Commission
File Number)
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(IRS
Employer Identification No.)
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1330
Avenue of the Americas, 34th
Floor, New York, NY
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10019-5400
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(212)
277-1100
(
Registrant’s
Telephone Number, Including Area Code)
(Former
Name or Former Address, if Changed Since Last Report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see
General
Instruction A.2. below):
o Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
1.01 Entry
Into a Material Definitive Agreement
A
discussion of certain features of January 2008 amendments to the Company’s bank
credit facility with BTMU Capital Corporation, as agent, are discussed below
in
Item 8.01 of this Current Report.
Item
2.02 Results
of Operations and Financial Condition
On
May
19, 2008, NexCen Brands, Inc. issued a press release that included an
announcement of certain preliminary financial results for the first quarter
ended March 31, 2008. A copy of the press release, which also discussed other
matters addressed in this Current Report, is furnished herewith as Exhibit
99.1
and is incorporated by reference herein. This information shall not be deemed
“filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), or incorporated by reference in any filing under
the Securities Act of 1933, as amended, or the Exchange Act, except as shall
be
expressly set forth by specific reference in such a filing.
Item
2.03 Creation
of a Direct Financial Obligation or an Obligation under an
Off-Balance
Sheet Arrangement of a Registrant
A
discussion of certain features of January 2008 amendments to the Company’s bank
credit facility with BTMU Capital Corporation, as agent, are discussed below
in
Item 8.01 of this Current Report.
Item
3.01 Notice
of Delisting or Failure to Satisfy a Continued Listing Rule or
Standard;
Transfer of Listing
On
May
19, 2008, the Company will notify The Nasdaq Stock Market that it will not
timely file its Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2008 with the Securities and Exchange Commission. The Company also
will notify the Nasdaq of the matters discussed in Item 4.02 of this Current
Report. As a result, the Company will not be in compliance with the Nasdaq
Marketplace Rule 4310(c)(14) as of May 20, 2008. The Nasdaq requires, among
other things, that the Company timely file all required reports with the
Securities and Exchange Commission. The Company intends to file its Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2008, and expects
to complete any required amendments to its Annual Report on Form 10-K for the
fiscal year ended December 31, 2007, as promptly as possible following the
resolution of the matters discussed below in Item 4.02 of this Current
Report.
The
Company expects that the Nasdaq will notify the Company that the delay in filing
the Form 10-Q constitutes noncompliance with the Nasdaq's listing requirements.
Upon receipt of such notification, the Company will initiate the appeal process
by requesting a hearing before the Nasdaq Listing Qualifications Panel. The
Company expects that, pending a decision by the panel, the securities of the
Company will remain listed on the Nasdaq.
Item
4.02 Non-Reliance
on Previously Issued Financial Statements or a Related Audit
Report
or Completed Interim Review
(a)
On
May 15, 2008, authorized officers of the Company, after a review of the
Company’s prior public filings and the terms of the January 2008 amendments to
its bank credit facility, concluded that disclosures regarding certain features
of the January 2008 amendments to its bank credit facility in connection with
the acquisition by one of the Company’s wholly-owned subsidiaries of
substantially all of the assets of Great American Cookie Franchising, LLC and
Great American Manufacturing LLC (the “Cookie Acquisition”) were neither
contained in the Company’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 29, 2008 nor the Company’s Annual Report on
Form 10-K for the year ended December 31, 2007, as originally filed with the
Securities and Exchange Commission on March 21, 2008. In the Annual Report
on
Form 10-K, the January 2008 amendments to the bank credit facility were
discussed in two footnotes to the Company’s audited financial statements for the
fiscal year ended December 31, 2007 (Note 8(a), regarding the credit facility
and Note 24, regarding subsequent events) and descriptions of the Company’s bank
borrowings in other portions of the Annual Report, including descriptions of
the
bank credit facility described in Item 7 - Management’s Discussion and Analysis
of Financial Condition and Results of Operations under the caption “Liquidity
and Capital Resources.”
These
features of the January 2008 amendments, which are discussed below in Item
8.01
of this Current Report, have raised significant concerns about the Company’s
liquidity and capital resources. Based on information that has become known
to
us between the filing of our Annual Report and the date of this Current Report
on Form 8-K, we currently believe that there is substantial doubt about the
Company’s ability to continue as a going concern and, pending completion of the
independent review discussed below, substantial doubt also may have existed
at
the time the Company filed its Annual Report. This independent review will,
among other things, assess what the facts were at the time of the filing of
the
Annual Report. While the Company is continuing to review all of the relevant
facts and circumstances, due to uncertainties surrounding the going concern
issue, and in light of the disclosure considerations that affect two of the
footnotes to the Company’s audited financial statements, the authorized officers
of the Company concluded that the Company’s audited financial statements for the
fiscal year ended December 31, 2007, as contained in the Annual Report, should
no longer be relied upon. After discussion with KPMG, no reliance should be
placed on KPMG’s audit report dated March 20, 2008 on the Company's consolidated
financial statements as of December 31, 2007 and 2006 and each of the years
in
the three-year period ended December 31, 2007 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 Annual Report.
To
assist
the Company in evaluating and resolving the circumstances surrounding the going
concern issue, public disclosures regarding the January 2008 amendments to
the
Company’s bank credit facility and the need to reevaluate the effectiveness of
the Company’s disclosure controls and procedures, the audit committee of the
Company’s board of directors has retained independent counsel to conduct an
independent review of the situation. Upon completion of the independent review,
the audit committee expects to discuss the findings with KPMG. Management,
together with the audit committee, will then determine what changes will be
required to be made to the Annual Report. The changes to the Annual Report
may
include (1) additional footnote disclosure regarding the January 2008 amendments
to the Company’s bank credit facility; (2) footnote disclosure regarding going
concern considerations; (3) revisions to certain of the disclosures contained
in
the Annual Report that relate to the Company’s bank credit facility, as amended
in January 2008, the Company’s prospective liquidity concerns, and financial
condition and risks related to such liquidity concerns; and (4) a revised audit
report from KPMG. The Company also is further evaluating the effect of these
matters on management's assessment of internal control over financial reporting
as of December 31, 2007.
In
addition, until the independent review is completed and the Company amends
its
Annual Report on Form 10-K for the year ended December 31, 2007, the Company
does not intend to file the Quarterly Report on Form 10-Q for the quarter ended
March 31, 2008.
Because
these matters relate to amendments to the Company’s bank credit facility, which
were effected in January 2008, they are treated as a subsequent event with
respect to the fiscal year ended December 31, 2007. These bank credit facility
amendments affect footnote disclosures in the Company’s financial statements and
the audit report thereon of KPMG. The Company does not expect to change the
reported financial results contained in the financial statements that were
included in the Annual Report.
The
authorized officers of the Company have
discussed the matters disclosed in this Item 4.02 with KPMG.
A
discussion of matters relating to the January 2008 amendments to the Company’s
bank credit facility and resulting liquidity considerations are discussed below
in Item 8.01 of this Current Report.
Item
8.01 Other
Events
The
Company amended its existing bank credit facility with BTMU Capital Corporation
in January 2008 in connection with the Cookie Acquisition. As previously
reported in a Current Report on Form 8-K filed on January 29, 2008, the
amendments were entered into to allow the Company to borrow an additional $70
million to finance a portion of the purchase price for the Cookie Acquisition.
The total amount outstanding under the facility as of March 31, 2008 was $178
million.
The
January 2008 amendments were effected through a series of documents, including
an Omnibus Amendment. In addition, Company subsidiaries involved in the Cookie
Acquisition entered into a Security Agreement Supplement, dated January 29,
2008, which amended the Security Agreement that was signed when the bank credit
facility was originally established in March 2007. In light of first quarter
2008 performance and revised, preliminary cash flow forecasts prepared in May
2008 following the hiring of a new Chief Financial Officer in late March 2008,
management focused attention on terms of the amendments that had not been
discussed in the Company’s prior public filings. Specifically, these terms
included various changes to the priority of cash distributions from “lockbox
accounts” established in connection with the bank credit facility, as well as an
accelerated redemption feature applicable to $35 million of the $70 million
that
was borrowed in January 2008 in connection with the Cookie Acquisition. (We
refer to this $35 million borrowing as the “Factory Note” because it is secured
by the cookie dough factory that was acquired in the Cookie
Acquisition.)
Pursuant
to the bank credit facility, substantially all of the revenues earned by the
Company’s franchise and brand management businesses are collected in “lockbox
accounts” and are disbursed on a periodic basis pursuant to the terms of the
Security Agreement (as it has been supplemented since March 2007). Such
distributions to the Company were intended to cover ordinary course operating
expenses of the Company’s franchise and brand management businesses. The January
2008 amendments subordinated a portion of these distributions to the Company
to
the payment of certain amounts to the bank lenders, including accrued but unpaid
interest and required principal amortization payments under the bank credit
facility. In addition, the January 2008 amendments provided that after payment
of this subordinated amount to the Company, all remaining collected cash from
the Company’s franchise businesses and the cookie dough factory not needed to
operate those businesses (and without regard to corporate overhead or expenses
of the Company’s brand management businesses) would be applied to reduce the
then-outstanding principal amount of the Factory Note until the Factory Note
is
repaid in full.
These
changes to the cash distribution priorities in the bank credit facility were
intended to provide the lenders with greater assurance of receiving regular
interest and principal amortization payments and to accelerate repayment of
the
Factory Note (which matures in January 2013). In addition, they have the effect
of substantially reducing the amount of operating cash flow from the Company’s
franchise businesses and the cookie dough factory that will be available to
the
Company prior to repayment of the Factory Note for payment of corporate overhead
and other expenses not directly incurred by the Company’s franchise businesses
and the cookie dough factory.
The
Security Agreement Supplement also provides that if the outstanding amount
of
the Factory Note is more than $5 million on October 17, 2008, a principal
payment will be required to reduce the outstanding principal amount to $5
million. (The Security Agreement Supplement gives the lender the option to
extend this accelerated principal repayment obligation to July 2009.) As of
March 31, 2008, the outstanding principal amount of the Factory Note was
approximately $33 million.
The
foregoing description of the terms of the January 2008 amendments is qualified
in its entirety by the terms and conditions of the Omnibus Amendment, which
was
filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 29, 2008, and the Security
Agreement Supplement, dated January 29, 2008, which is filed as Exhibit 10.1
to
this Current Report.
Based
on
preliminary projections as of the date of this Current Report on Form 8-K,
the
Company expects that without changes to the frequency of the lockbox account
disbursements under its bank credit facility or other measures that might
enhance its liquidity, the Company could face a cash shortfall in mid- to
late-June 2008 and again in August 2008. Based on these projections, which
include the Company making its scheduled debt service payments, the Company
estimates that the maximum amount of the cash deficiency could be approximately
$7-10 million through October 17, 2008 (prior to the principal repayment on
the
Factory Note). The Company also will need additional cash to make the required
principal payment on the Factory Note on October 17, 2008, and the Company
currently estimates that such payment will be approximately $21 million. The
Company is continuing to review and refine its cash forecasts, and the amounts
outlined above are subject to changes, uncertainties and risks, including the
uncertainties of future events.
The
Company is actively exploring options to enhance its liquidity, including
potential capital market transactions, the possible sale of one or more of
its
businesses, discussions with the Company’s lender regarding possible additional
amendments to the bank credit facility, and our other strategic options. The
Company has engaged FTI Consulting, Inc. to review the Company’s cash flows and
projections to help it develop a near-term liquidity plan to address the
Company’s short-term liquidity needs. As disclosed in our existing filings, one
of our directors, Jack Dunn, is also Chairman and Chief Executive Officer of
FTI. The Board has determined that Mr. Dunn remains an independent director
under the standard for independence set forth in our corporate governance
guidelines, in
view
of the fact that the services being provided by FTI are immaterial to FTI.
In
addition, pursuant to the Company’s policies and procedures with respect to
related party transactions, the
Nominating and Corporate Governance Committee has determined that the
arrangement with FTI is in the best interests of the Company and its
shareholders. The Company also expects to retain an investment bank to provide
advice on its strategic options.
This
Current Report on Form 8-K 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 expectations
for the development of our business, plans to expand the offerings of our brands
and businesses, expectations for the future performance of our brands and
comments about estimated or anticipated future financial results. 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) as a result of our inability to file our Quarterly Report on Form 10-Q
for
the quarter ended March 31, 2008 within the required timeframe and the possible
need to amend our Annual Report on Form 10-K for the year ended December31,
2007, it is possible that we may be subject to the Nasdaq delisting proceedings,
governmental investigations and third-party claims, (2) our acquisitions may
not
be successful, may involve unanticipated costs or difficulties or delays in
being integrated with our existing operations, or may disrupt our existing
operations, (3) we may not be successful in operating or expanding our brands
or
integrating our acquisitions into our overall business strategy, (4) any failure
to meet our debt obligations would adversely affect our business and financial
conditions, and our need for additional near-term liquidity could result in
a
sale of one or more of our businesses at less than an optimal price or an
inability to continue to operate one or more of our businesses, (5) our
marketing, licensing and franchising concepts and programs may not result in
increased revenues, expansion of our franchise network or increased value for
our trademarks and franchised brands, (6) we depend on the success of our
licensees and franchisees for future growth, (7) our near-term liquidity needs
and the impact of our failure to file our required periodic reports on a timely
basis may adversely affect our ability to retain existing, or attract new,
employees, franchisees, and licenses, (8) our near-term liquidity needs may
be
higher or lower than our current expectations and (9) other factors discussed
in
our 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.
Item
9.01 Financial
Statements and Exhibits
(d)
Exhibits
| 10.1 |
Security
Agreement Supplement, dated January 29, 2008, by and among NexCen
Holding
Corporation, GAC Manufacturing, LLC, GAC Supply, LLC and BTMU
Capital Corporation.
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| 99.1 |
Press
release, dated May 19, 2008.
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SIGNATURES
According
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized on May 19, 2008.
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NEXCEN
BRANDS,
INC. |
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/s/ Robert
W.
D’Loren |
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By: |
Robert W. D’Loren |
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Its: |
Chief Executive Officer and
President |
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