Exhibit 99.2
RAMPAGE LICENSING, LLC
FINANCIAL STATEMENTS
DECEMBER 31, 2004
CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance sheet 2
Statement of income 3
Statement of members' equity (deficit) 4
Statement of cash flows 5
Notes to financial statements 6-10
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION 11
Schedule of operating expenses 12
COHN HANDLER & CO
An Accountancy Corporation
Members
Rampage Licensing, LLC
We have audited the accompanying balance sheet of Rampage Licensing, LLC as of
December 31, 2004, and the related statements of income, members' equity
(deficit) and cash flows for the year then ended. These financial statements are
the responsibility of the management of Rampage Licensing, LLC. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rampage Licensing, LLC as of
December 31, 2004, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
/s/ COHN HANDLER & CO
COHN HANDLER & CO
An Accountancy Corporation
September 13, 2005
11400 West Olympic Boulevard, Suite 630
Los Angeles, California 90064
Telephone: (310) 479-9600
Fax: (310) 479-9605
1
RAMPAGE LICENSING, LLC
BALANCE SHEET
DECEMBER 31, 2004
ASSETS
Current assets:
Cash $53,000
Royalties receivable 515,000
Prepaid expenses 80,000
-----------
Total current assets $ 648,000
Property and equipment, net 2,000
Trademark, net 21,358,000
--------------
$22,008,000
==============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $106,000
Licensee deposits 206,000
State gross receipts tax payable 12,000
Accrued interest, related party 4,380,000
-----------
Total current liabilities $4,704,000
Note payable, related party 17,008,000
Members' equity 296,000
--------------
$22,008,000
==============
See independent auditors' report and notes to financial statements.
2
RAMPAGE LICENSING, LLC
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2004
Amount
Net licensing revenue $6,422,000
Operating expenses 2,793,000
-----------
Income from operations 3,629,000
Interest expense - net 658,000
-----------
Income before state gross receipts tax 2,971,000
State gross receipts tax 13,000
-----------
Net income $2,958,000
===========
See independent auditors' report and note to financial statements.
3
RAMPAGE LICENSING, LLC
STATEMENT OF MEMBERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 2004
Balance, beginning $(1,570,000)
Net income 2,958,000
Member distributions (1,092,000)
-----------
Balance, ending $ 296,000
===========
See independent auditors' report and notes to financial statements.
4
RAMPAGE LICENSING, LLC
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2004
Cash flows from operating activities:
Net income $2,958,000
Adjustments to reconcile net income to net
cash flows provided by operating activities:
Depreciation $1,000
Extraordinary item -
extinguishment of debt (784,000)
(Increase) decrease in assets:
Due to affiliate (806,000)
Royalties receivable 130,000
Prepaid expenses (80,000)
Increase (decrease) in liabilities:
Licensee deposits 33,000
Accounts payable (145,000)
Accrued interest, related party (236,000)
----------
(1,887,000)
----------
Net cash flows provided by operating
activities 1,071,000
Net cash flows applied to investing activities:
Purchase of property and equipment (3,000)
Increase in trademark (41,000)
----------
(44,000)
----------
Net cash flows applied to financing activities:
Member distributions (1,092,000)
-----------
Net decrease in cash (65,000)
Cash, beginning 118,000
-----------
Cash, ending $53,000
===========
See independent auditors' report and notes to financial statements.
5
RAMPAGE LICENSING, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
1. Principle industry:
Rampage Licensing, LLC is exclusively engaged in the licensing of the
Rampage trademark. Rampage Licensing, LLC is owned 99 percent by its
affiliate, Rampage Clothing Company.
2. Summary of significant accounting policies:
Cash equivalents: For purposes of the statement of cash flows, the
Company considers cash on hand and deposits in banks as cash and cash
equivalents.
Revenue recognition: The Company recognizes revenues from its licensees
for royalties and advertising as it is earned, based on the
corresponding contracts.
Depreciation: Property and equipment is stated at cost. Depreciation is
provided for by the straight-line method over the estimated useful life
of the related asset.
Advertising: The Company expenses all advertising costs when incurred.
Advertising expense was $660,000 for the year ended December 31, 2004.
Trademark: As of January 2002, the Company values the trademark as per
FASB issued Statement of Financial Accounting Standards No. 142. Under
these guidelines, the trademark deemed to have an indefinite life will
no longer be amortized. The Company will evaluate the trademark for
impairment each reporting period. As of the balance sheet date,
management has determined that the trademark has not been impaired.
Income taxes: Rampage Licensing, LLC will be taxed substantially as a
partnership rather than as a corporation for federal and state tax
purposes. Accordingly, all taxable earnings of Rampage Licensing, LLC
are the liability of the members. Rampage Licensing, LLC continues to be
liable for California gross receipts tax.
Member distributions: Distributions may be made (at such time and in
such amounts as determined by the managers) to the members in accordance
with their respective participation percentages.
See independent auditors' report.
6
RAMPAGE LICENSING, LLC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2004
2. Summary of significant accounting policies - continued:
Consideration of credit risk: The Company maintains cash deposits with
one midsize local bank which from time to time may exceed federally
insured limits. The Company periodically accesses the financial
condition of the institution and believes that the risk of any loss is
minimal.
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Related party transactions: The Company's parent, Rampage Clothing
Company, pays for and incurs expenses on behalf of the Company. These
expenses are repaid in the normal course of business. In addition, the
Company has a licensing agreement with Rampage Clothing Company.
3. Royalties receivable:
Royalties receivable represent royalties earned from licensees not yet
collected. Two licensees accounted for approximately 83% of these
receivables. All amounts were subsequently collected.
In addition, two other licensees accounted for approximately 46% of the
net licensing revenue for the year ended December 31, 2004.
4. Property and equipment, net:
Computer $ 3,000
Less accumulated depreciation 1,000
-------------
$ 2,000
See independent auditors' report.
7
RAMPAGE LICENSING, LLC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2004
5. Trademark, net:
Trademark, at cost $ 23,086,000
Less accumulated amortization 1,728,000
-------------
$ 21,358,000
The original amount of the trademark, $23,000,000, was valued to the
extent of the liabilities assumed under the Note payable, Rampage
Creditors' Trust via the reorganization plan for its affiliate, Rampage
Clothing Company, dated January 4, 1999. This note was subsequently
purchased by a related party. There have been additional costs adding to
the value of the trademark.
The trademark is collateral to CIT Group/Commercial Services and to its
parent, Rampage Clothing Company, as part of the licensing agreement
between the Company and its parent.
6. Note payable, related party:
The note represents the total unsecured claims originally allowed at
January 4, 1999, by the bankruptcy court relating to Rampage Clothing
Company and transferred to Rampage Licensing, LLC., less subsequent
adjustments. The trustee of the Rampage Creditor Trust has continued to
investigate and validate the original claims. Based on these
investigations, there were adjustments to the claims in 2003 and again
in 2004. The difference between the originally allowed claims and the
amounts to be paid has been recognized in the statement of income for
the fiscal year ended December 31, 2004, as an extraordinary item in the
amount of $784,000. On November 12, 2004, all outstanding claims and
related accrued interest were purchased by a related party. The members
of the related party are the majority stockholders of Rampage Clothing
Company. The note payable, related party, with interest at 8 percent per
annum, is due January 4, 2019. No interest was paid on the related party
debt through December 31, 2004. Interest payments were made to the
Rampage Licensing Creditor Trust through September 2004. The note is
secured by all the assets of the Company.
7. Supplemental cash flow disclosures:
Cash paid during the period was as follows:
Interest $ 1,754,000
=============
Income taxes $ 13,000
=============
See independent auditors' report.
8
RAMPAGE LICENSING, LLC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2004
8. Licensing agreements:
Rampage Licensing, LLC, as licensor, has entered into a licensing
agreement with Rampage Clothing Company for the worldwide use of the
Rampage and associated trademarks in connection with the marketing,
advertising, importing, distribution and selling of young women's and
junior dresses and collection sportswear. Rampage Clothing Company shall
pay to Rampage Licensing, LLC a royalty of one percent of the amount of
net revenues from sales of licensed goods beginning in February 2001,
and continuing through January 2007. Rampage Clothing Company shall have
a fully paid up license in 2007. The agreement has no minimum annual
royalties and shall exist in perpetuity.
Rampage Licensing, LLC, as licensor, has entered into several licensing
agreements to manufacture, import, sell, distribute and merchandise the
following products:
Women's and juniors' swimwear
Girls' dresses
Girls' sportswear
Outerwear
Sleepwear
Women's and juniors' footwear
Intimate apparel/hosiery
Men's, young men's and boys' wear
Bodywear, activewear and windwear
Juniors'/women's knits and sweaters
Handbags, small leather goods, and luggage
Costume jewelry
Sunglasses
The royalty income varies as a percentage of net sales ranging between 5
and 7 percent for standard sales price, and less for goods sold off
price depending on selling discounts. All licensees are required to pay
nonrefundable minimum royalties. Most licenses are also required to pay
advertising royalties of 1-2 percent of net sales. The licensing
agreements shall terminate at various times through December 31, 2012.
The licensing agreements have varying renewal options provided the terms
and conditions under the agreements have been met.
See independent auditors' report.
9
RAMPAGE LICENSING, LLC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 2004
8. Licensing agreements - continued:
The required minimum royalties, not including advertising royalties, for
the calendar years ending December 31 are as follows:
2005 $ 3,747,000
2006 4,228,000
2007 4,705,000
2008 3,390,000
2009 774,000
2010 and thereafter 2,280,000
--------------
Total commitments: $ 19,124,000
==============
9. Subsequent event:
Subsequent to the fieldwork date, the Company sold the intellectual
property of Rampage Licensing, LLC to Iconix Brand Group, Inc. This
includes the trademark and existing licensing agreements, including the
Rampage Clothing license. The sale price is $45.9 million comprised of
$25.8 million in cash and $20.1 million of restricted stock of the
purchasing company. The Company will use the monies received to pay
non-related and related debt of Rampage Licensing, LLC and its parent
company, Rampage Clothing Company, as well other amounts based upon
contractual obligations. Subsequent to the completion of the sale and
disbursement of funds, the Company will cease operations.
See independent auditors' report.
10
INDEPENDENT AUDITORS' REPORT ON
SUPPLEMENTARY INFORMATION
Members
Rampage Licensing, LLC
The independent auditors' report on the basic financial statements of Rampage
Licensing, LLC as of December 31, 2004, appears on page 1. That audit was made
for the purpose of forming an opinion on the basic financial statements taken as
a whole. The supplementary information on page 12 is presented for purposes of
additional analysis and is not part of the basic financial statements. Such
information has not been subjected to the auditing procedures applied in the
audit of the basic financial statements and accordingly, we do not express an
opinion on the supplementary information.
/s/ COHN HANDLER & CO
COHN HANDLER & CO
An Accountancy Corporation
September 13, 2005
11
RAMPAGE LICENSING, LLC
SUPPLEMENTARY INFORMATION
SCHEDULE OF OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 2004
Selling:
Advertising $660,000
Depreciation 1,000
Marketing salaries 259,000
Payroll taxes 12,000
Selling and marketing 82,000
Trade show 4,000
Travel 16,000
--------
$1,034,000
General and administrative:
Consulting 13,000
Insurance 9,000
Licensing and management fees 1,380,000
Office 12,000
Professional fees 337,000
Tax and licenses 12,000
Telephone 1,000
Utilities 1,000
--------
1,765,000
----------
$2,799,000
==========
See independent auditors' report and note to financial statements.
12