Exhibit 99.3
RAMPAGE LICENSING, LLC
FINANCIAL STATEMENTS
JUNE 30, 2005
CONTENTS
PAGE
ACCOUNTANTS' REPORT 1
FINANCIAL STATEMENTS
Balance sheet 2
Statement of income 3
Statement of members' equity 4
Statement of cash flows 5
Notes to financial statements 6-10
COHN HANDLER & CO
An Accountancy Corporation
Members
Rampage Licensing, LLC
We have reviewed the accompanying balance sheet of Rampage Licensing, LLC as of
June 30, 2005, and the related statements of income, members' equity (deficit)
and cash flows for the six months ended June 30, 2005 and 2004, in accordance
with Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. All information included in
these financial statements is the representation of the management of Rampage
Licensing, LLC.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/ COHN HANDLER & CO
----------------------------
COHN HANDLER & CO
An Accountancy Corporation
November 8, 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 - JUNE 30, 2005
ASSETS
Current assets:
Cash $36,000
Royalties receivable 1,036,000
Prepaid advertising 174,000
Prepaid expenses 11,000
-----------
Total current assets $1,257,000
Trademark, net 21,364,000
--------------
$22,621,000
==============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $273,000
State gross receipts tax payable 6,000
Accrued expenses 283,000
Accrued interest, related party 4,988,000
-----------
Total current liabilities $5,550,000
Note payable, related party 17,008,000
Members' equity 63,000
--------------
$22,621,000
==============
See accountants' report and notes to financial statements
2
RAMPAGE LICENSING, LLC
STATEMENTS OF INCOME
SIX MONTHS ENDED
----------------------------
JUNE 30, 2005 JUNE 30, 2004
Net licensing revenue $3,899,000 $3,325,000
Operating expenses 1,535,000 629,000
----------- -----------
Income from operations 2,364,000 2,696,000
Interest expense 684,000 720,000
----------- -----------
Income before state gross receipts tax 1,680,000 1,976,000
State gross receipts tax 7,000 7,000
----------- -----------
Net income $1,673,000 $1,969,000
=========== ===========
See accountants' report and notes to financial statements
3
RAMPAGE LICENSING, LLC
STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
SIX MONTHS ENDED
----------------------------
JUNE 30, 2005 JUNE 30, 2004
Balance, beginning $296,000 $(1,570,000)
Net income 1,673,000 1,969,000
Member distributions (1,906,000) 0
----------- -----------
Balance, ending $63,000 $399,000
=========== ===========
See accountants' report and note to financial statements
4
RAMPAGE LICENSING, LLC
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
----------------------------
JUNE 30, 2005 JUNE 30, 2004
Cash flows from operating activities:
Net income $1,673,000 $1,969,000
Adjustments to reconcile net income to net
cash flows provided by operating activities:
Depreciation 2,000 -
(Increase) decrease in assets:
Accounts receivable - (353,000)
Royalties receivable (521,000) 5,000
Prepaid advertising (174,000) -
Prepaid expenses 69,000 (154,000)
Increase (decrease) in liabilities:
Due to factor
Accounts payable 167,000 (146,000)
Licensee deposits (206,000) (56,000)
State gross receipts tax payable (6,000) (6,000)
Accrued expenses 206,000 125,000
Due to affiliate - (991,000)
Accrued interest - 1,224,000
Accrued interest, related party 685,000 -
---------- -----------
222,000 (352,000)
---------- -----------
Net cash flows provided by operating
activities 1,895,000 1,617,000
Net cash flows applied to investing activities:
Increase in trademark (6,000) (25,000)
Purchase of property and equipment - (2,000)
---------- -----------
Net cash flows applied to
investing activities (6,000) (27,000)
Net cash flows applied to financing activities:
Repayment of note payable, Rampage
Creditor Trust (accrued interest) - (1,696,000)
Member distributions (1,906,000) -
----------- -----------
Net cash flows applied to
financing activities (1,906,000) (1,696,000)
Net decrease in cash (17,000) (106,000)
Cash, beginning 53,000 118,000
----------- -----------
Cash, ending $36,000 $ 12,000
=========== ===========
See accountants' report and notes to financial statements
5
RAMPAGE LICENSING, LLC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2005
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. All assets are fully depreciated as of the balance
sheet date.
Advertising: Advertising costs are expensed when incurred with the
exception of any expenses paid in connection with an advertising
campaign that has not yet taken place. Those advertising costs are
classified as prepaid expense items until after the campaign has taken
place. Advertising expense was $598,000 for the six months ended June
30, 2005 and $149,000 for the six months ended June 30, 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, trademarks deemed to have an indefinite life will no
longer be amortized. The Company will evaluate the trademark for
impairment each reporting period. At June 30, 2005 and 2004, 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 accountants' report.
6
RAMPAGE LICENSING, LLC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2005
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 assesses 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 61% of these
receivables. All amounts were subsequently collected.
In addition, two licensees accounted for approximately 54% of the net
licensing revenue for six months ended June 30, 2005.
4. Trademark, net:
Trademark, at cost $ 23,092,000
Less accumulated amortization 1,728,000
-------------
$ 21,364,000
See accountants' report.
7
RAMPAGE LICENSING, LLC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2005
4. Trademark, net - continued
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.
5. 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. 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. Interest on the note was $684,000 for the six
months ended June 30, 2005, none of which was paid as of the balance
sheet date. Interest on the note payable, Rampage Creditor Trust, was
$677,000 for the six months ended June 30, 2004, of which $1,192,000 was
paid. The note is secured by all the assets of the Company.
6. Supplemental cash flow disclosures:
Cash paid for interest for the six months ended June 30, 2005 and 2004
was $0 and $1,192,000, respectively.
Income taxes paid for the six months ended June 30, 2005 and 2004 was
$13,000 and $13,000, respectively.
See accountants' report.
8
RAMPAGE LICENSING, LLC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2005
7. 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,
which ended September 16, 2005, commensurate with the sale of the
trademark (see footnote 8). The agreement has no minimum annual
royalties.
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 accountants' report.
9
RAMPAGE LICENSING, LLC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2005
7. Licensing agreements - continued:
The required minimum royalties, not including advertising royalties, for
the calendar years ending December 31 are as follows:
2005 $ 3,633,000
2006 4,051,000
2007 4,435,000
2008 3,240,000
2009 774,000
2010 and thereafter 2,280,000
---------
Total commitments: $ 18,413,000
=============
8. Subsequent event:
Subsequent to the balance sheet date and prior to the field work date,
the Company sold the intellectual property of Rampage Licensing, LLC to
Iconix Brand Group, Inc. The sale included the trademark and existing
licensing agreements, including the Rampage Clothing license. The sale
price was $45.9 million comprised of $25.8 million in cash and $20.1
million of restricted stock of the purchasing company. The Company used
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. Pursuant to the
purchase agreement for the aforementioned sale, the Company changed its
name to LDP Licensing, LLC. It will cease operations by year end 2005.
See accountants' report.
10