EX-99.2 4 exhibit99-2_11492.txt RAP GROUP FINANCIAL STATEMENTS EXHIBIT 99.2 ------------ INDEPENDENT AUDITORS' REPORT To the Board of Directors Rap Group, Inc. dba The Repo Outlet We have audited the accompanying balance sheet of Rap Group, Inc. dba The Repo Outlet as of December 31, 2001, and the related statements of operations, changes in shareholders' equity, and cash flows for the years ended December 31, 2001 and 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 audits provide 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 Rap Group, Inc. dba The Repo Outlet as of December 31, 2001, and the results of its operations and its cash flows for the years ended December 31, 2001 and 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ SPICER, JEFFRIES & CO. Denver, Colorado July 3, 2002 2 RAP GROUP, INC. DBA THE REPO OUTLET BALANCE SHEET DECEMBER 31, 2001 ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $ 148,047 Contracts receivable, net of allowance for doubtful accounts of $543,324 (Note 2) 358,801 Inventory 499,101 Due from related party (Note 3) 166,942 Deferred tax asset (Note 4) 87,190 Advances receivable 1,500 ----------- TOTAL CURRENT ASSETS 1,261,581 PROPERTY AND EQUIPMENT, net of accumulated depreciation of $15,059 45,985 ----------- $ 1,307,566 =========== LIABILITIES AND SHAREHOLDER'S EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable and accrued expenses $ 115,230 Due to credit unions 203,653 Income taxes payable 240,011 Due to related party (Note 3) 155,136 ----------- TOTAL CURRENT LIABILITIES 714,030 ----------- COMMITMENTS AND CONTINGENCIES (Notes 5 and 6) SHAREHOLDER'S EQUITY: Common stock, no par value; 25,000 shares authorized; 10,000 shares issued and outstanding 27,911 Retained earnings 565,625 ----------- TOTAL SHAREHOLDER'S EQUITY 593,536 ----------- $ 1,307,566 =========== The accompanying notes are an integral part of these statements. 3 RAP GROUP, INC. DBA THE REPO OUTLET STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2001 AND 2000 2001 2000 ------------ ----------- SALES $ 6,365,498 $ 7,146,267 COST OF SALES 4,936,678 5,460,716 ------------ ----------- GROSS PROFIT ON SALES 1,428,820 1,685,551 ------------ ----------- OPERATING EXPENSES: Advertising and promotion 90,860 61,142 Bad debts 322,318 95,772 General and administrative 120,214 90,876 Insurance 51,554 24,472 Professional fees 74,767 78,628 Rents and occupancy 82,269 82,372 Salaries, benefits and related expenses 555,854 487,293 ------------ ----------- TOTAL OPERATING EXPENSES 1,297,836 920,555 ------------ ----------- OPERATING INCOME 130,984 764,996 ------------ ----------- OTHER INCOME (EXPENSE): Other income 16,606 10,208 Interest expense (36,240) (9,000) ------------ ----------- NET OTHER INCOME (EXPENSE) (19,634) 1,208 ------------ ----------- NET INCOME BEFORE INCOME TAXES 111,350 766,204 Provision for income taxes (Note 4) (60,215) (301,762) ------------ ----------- NET INCOME $ 51,135 $ 464,442 ============ =========== The accompanying notes are an integral part of these statements. 4 RAP GROUP, INC. DBA THE REPO OUTLET STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY YEARS ENDED DECEMBER 31, 2001 AND 2000
Common Stock Total No Par Value Retained Shareholder's Shares Amount Earnings Equity ------------ ------------ ----------- ------------ BALANCES, DECEMBER 31, 1999 10,000 $ 27,911 $ 50,048 $ 77,959 Net income -- -- 464,442 464,442 ------------ ------------ ----------- ------------ BALANCES, DECEMBER 31, 2000 10,000 27,911 514,490 542,401 Net income -- -- 51,135 51,135 ------------ ------------ ----------- ------------ BALANCES, DECEMBER 31, 2001 10,000 $ 27,911 $ 565,625 $ 593,536 ============ ============ =========== ============
The accompanying notes are an integral part of these statements. 5 RAP GROUP, INC. DBA THE REPO OUTLET STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2001 AND 2000 INCREASE (DECREASE) IN CASH 2001 2000 ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 51,135 $ 464,442 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Bad debts 322,318 95,772 Depreciation 6,219 4,500 Increase in contracts receivable (17,923) (666,589) (Increase) decrease in inventory (346,249) 14,425 Increase in deferred tax asset (87,190) -- Increase (decrease) in due to credit unions (55,777) 161,276 Increase in income taxes payable 42,729 176,000 Increase in accounts payable 25,532 58,819 ------------ ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES (59,206) 308,645 ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of office equipment (26,872) (24,098) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in due from affiliate (166,942) -- (Increase) decrease in advances receivable 25,000 (26,500) Payments, net, on related party payable (52,508) (48,125) ------------ ----------- NET CASH USED IN FINANCING ACTIVITIES (194,450) (74,625) ------------ ----------- NET INCREASE (DECREASE) IN CASH (280,528) 209,922 CASH, BEGINNING OF YEAR 428,575 218,653 ------------ ----------- CASH, END OF YEAR $ 148,047 $ 428,575 ============ =========== SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS: Income taxes paid $ 104,676 $ 125,762 ============ =========== Interest paid $ 45,740 $ 9,000 ============ =========== The accompanying notes are an integral part of these statements. 6 RAP GROUP, INC. DBA THE REPO OUTLET NOTES TO FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND OPERATIONS Rap Group, Inc. ("the Company") was incorporated in California on May 16, 1996. The Company's primary business is the sale of used automobiles. Sales consist of vehicles that are owned by the company and repossessed vehicles that are not owned by the Company. Sales are made primarily in Northern California. STATEMENT OF CASH FLOWS For purposes of the statements of cash flows, cash includes deposits in commercial bank accounts. ACCOUNTS RECEIVABLE The Company uses the allowance method for accounting for bad debts. At December 31, 2001, the Company's management believes the allowance is adequate to provide for future losses. INVENTORY Inventory is valued at the lower of cost or market. Inventory is costed on a specific identification method. As of December 31, 2001, inventory is entirely comprised of used automobiles. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the useful lives of the assets ranging from 5 to 7 years. The cost of maintenance and repairs is charged to expense as incurred. Significant renewals and improvements are capitalized. DUE TO CREDIT UNIONS The Company has an arrangement with various credit unions to sell repossessed automobiles on their behalf. The credit union receives its proportionate share of the sale proceeds after a sale is completed. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. 7 RAP GROUP, INC. DBA THE REPO OUTLET NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED) USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount 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, and such differences may be material to the financial statements. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments, including cash, receivables, other assets and payables approximate fair value due to the short-term nature of those instruments. LICENSE AND DOCUMENT FEES The Company charges a standard fee per retail vehicle for license and documentation fees. The Company includes license and document fees as a part of operating income. NOTE 2 - CONTRACTS RECEIVABLE The Company's receivables consist of the following at December 31, 2001: Unfunded receivables $ 312,135 Finance company receivables 286,884 Other receivables 303,106 ------------ 902,125 Less reserve (543,324) ------------ $ 358,801 ============ Unfunded receivables consist of amounts due from customers on completed sales prior to funding by finance companies. Amounts due from finance companies represent a 30% retainage on the gross amount financed. These amounts are retained to offset future losses, if any, incurred by the finance company. These receivables have been fully reserved in the accompanying financial statements. 8 RAP GROUP, INC. DBA THE REPO OUTLET NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 3 - RELATED PARTY TRANSACTIONS The Company provides office space and facilities to a related entity, Voltage Vehicles, Inc. ("VVI"). The Company has advanced VVI $166,942 in operating capital as of December 31, 2001. The advances are non-interest bearing and are due on demand. In addition, the Company was advanced $155,136 from the sole shareholder of VVI. The advance bears interest and 6% and is due on demand. NOTE 4 - INCOME TAXES The provision for income taxes includes current income taxes of $147,405 and $301,762 for the years ended December 31, 2001 and 2000 and deferred income tax benefit of $87,190 and $0 for the years ended December 31, 2001 and 2000. Deferred income taxes, arising from financial statement and tax return temporary differences, principally relate to the reporting of the allowance for doubtful accounts and depreciation. The provision for income taxes is less than if computed at the maximum statutory federal income tax rate of 34% due to the following: 2001 2000 ---------- ---------- Computed "expected" tax expense $ 37,859 $ 260,509 Difference due to progressive statutory rates (7,665) (20,206) State taxes 30,021 61,459 ---------- ---------- Income tax expense $ 60,215 $ 301,762 ========== ========== Amounts for deferred tax assets and liabilities are as follows: 2001 ---------- Deferred tax liabilities $ -- ========== Deferred tax assets: Temporary difference due to allowance for Doubtful accounts and depreciation $ 87,190 Less valuation allowance -- ---------- Deferred tax asset $ 87,190 ========== 9 RAP GROUP, INC. DBA THE REPO OUTLET NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 5 - COMMITMENTS The Company leases its office space and facilities from a related party under an operating lease. The lease calls for monthly payments of $2,500. The lease will terminate on February 6, 2006. The Company paid rent expense of $30,000 under this lease for the years ended December 31, 2001 and 2000. The future minimum lease payments under this lease are as follows: 2002 $ 30,000 2003 30,000 2004 30,000 2005 30,000 2006 5,000 ---------- $ 125,000 ========== NOTE 6 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONTINGENCIES Substantially all of the Company's facilities are subject to federal, state and local provisions regulating the discharge of materials into the environment. Compliance with these provisions has not had, nor does the Company expect such compliance to have, any material effect upon the capital expenditures, net income, financial condition, or competitive position of the Company. Management believes that its current practices and procedures for the control and disposition of such wastes comply with applicable federal and state requirements. NOTE 7 - SUBSEQUENT EVENT Effective July 1, 2002, the Company was acquired by ZAP, a publicly traded company, as a wholly owned subsidiary. ZAP, formerly ZAPWORLD.Com, was incorporated on September 23, 1999 and provides alternate modes of transportation as a means of providing relief from the emissions associated with gas powered vehicles by developing low-cost electric vehicles. ZAP markets electric bicycles, scooters and other light electric vehicles. On March 1, 2002, ZAP filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code in the Northern District of California, Santa Rosa Division. Rap Group, Inc. was included in their plan of reorganization. ZAP's plan of reorganization was approved by the United States Bankruptcy Court on June 20, 2002 which allowed ZAP to emerge from bankruptcy. 10