Retail Cube Prospectus - RCG Corporation

that Applications totalling $20,500,000 as detailed in this Prospectus will be received. It is anticipated
that costs associated with the issue of this Prospectus, the conduct of the Offer and the acquisition
of the Groups will total approximately $2,750,000. An amount totalling $1,000,000 of this cost will
not be settled out of the monies raised from this Offer and is payable at the Company’s discretion
any time within two years and six months of the Listing Date (see Section 9.6.4 for details).
5.6.2 Valuation of intangible assets
The intangible assets, including trademarks and goodwill, in the Consolidated Pro forma Statement of
Financial Position as at 31 December 2003, represent the consideration to be paid for the Groups in
excess of the fair value of their identifiable net assets as at 31 December 2003. The values allocated
to individual assets were reviewed after consideration of the Historical and Forecast Financial
Performance of the Groups. Total consideration payable by the Company for the acquisition of the
Groups is $38,816,000. The consideration is to be provided by way of the issue of 37,400,000 Shares in
the Company at the Issue Price to vendors, payments of $14,020,000 in cash to the vendors, settlement
of costs associated with the Acquisition of $250,000 and the settlement of net debt in the Groups of
$3,980,000. In addition, the St Mary’s Property on which the Amazing Paints manufacturing facility
is situated is held by a company in the Amazing Paints Group. The agreed value of the St Mary’s
Property is $1,866,000, which forms part of the consideration to be paid to the Equityholders of
Amazing Paints. This portion of the consideration is to be funded out of the Company’s debt facility.
The Directors believe that the carrying values of the assets are reasonable and are not in excess of
their recoverable amounts.
Trademarks total $19,068,422 and have been valued based on discounted cash flow methodology,
utilising the relief from royalty method. With the introduction of International Accounting Standards
for FY2006, trademarks will be subject to an annual impairment test to ensure that the asset is not
recorded above its recoverable amount. This impairment test involves an assessment of the current
market value of the asset, the economic performance of the asset, and other market and economic
considerations.
Indicators of impairment include both external and internal factors, which need to be considered
by management in ensuring that the carrying value of an asset does not exceed its recoverable amount.
External indicators of impairment include the market value of the asset and the technological, market
and legal environment in which the business operates. Internal indicators of impairment include the
manner or extent to which an asset is used, and the economic performance of the business.
Goodwill arising on acquisition of the Groups totals $12,175,915 and will be amortised on a straight
line-basis over a maximum period of 20 years. With the introduction of International Accounting
Standards in FY2006, goodwill will not be amortised on a straight-line basis but will be subject to an
annual impairment test, involving the Directors’ assessment of the current market value of the asset,
the economic performance of the asset, the Company’s share price, and other market and economic
indicators. Based on the application of the annual impairment test, goodwill may be written down if the
information results in the carrying value of goodwill exceeding the recoverable amount or fair value of
the asset.
5.6.3 Taxation
Income tax has been included in the Forecasts at the relevant corporate tax rate.
5.6.4 Depreciation
The fixed assets held by the Company are depreciated on a straight-line basis, over their estimated
useful life to the Groups and the Company, which for most fixed assets is between three and eight years.
5.7 Sensitivity analysis
The analysis below provides some information in relation to the potential impact on the Pro forma
Consolidated Forecast Financial Information that may arise from a range of different events and
activities. The sensitivities examined below are only a subset of the potential factors which could
influence profitability and the Directors’ in no way imply that it is a comprehensive analysis. Two types
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