EX-99.2 4 ex992.txt AUDITED RAMPAGE FINANCIAL STATEMENTS 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