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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: NOT ASSIGNED
ZAP.COM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
STATE OF NEVADA C-76-0571159
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
100 MERIDIAN CENTRE, SUITE 350
ROCHESTER, NY 14618
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (716) 242-8600
-----------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO .
--- ---
NUMBER OF SHARES OUTSTANDING (LESS TREASURY SHARES) OF THE REGISTRANT'S COMMON
STOCK, PAR VALUE $0.001 PER SHARE, ON DECEMBER 15, 1999: 50,000,000
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ZAP.COM CORPORATION
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited Balance Sheets as of September 30, 1999 and
December 31, 1998.........................................................................3
Unaudited Statements of Operations for the
three months and nine months ended September 30, 1999 and
from April 2, 1998 (date of inception) through September 30, 1998
and the cumulative period from April 2, 1998 (date of
inception) to September 30, 1999.........................................................4
Unaudited Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1999 and from April 2, 1998 (date
of inception) through December 31, 1998 and the cumulative period
from April 2, 1998 (date of inception), to
September 30, 1999.......................................................................5
Notes to Unaudited Condensed Consolidated Financial Statements.............................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION...........................................................................................10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.............................................................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................................15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..............................................................15
SIGNATURES.............................................................................................16
EXHIBIT INDEX..........................................................................................28
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND NOTES
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
UNAUDITED BALANCE SHEETS
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<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ ---------
ASSETS
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ASSETS:
Current assets:
Cash and cash equivalents................................... $ -- $ 23,401
----- ---------
Total current assets...................................... -- 23,401
Property and equipment...................................... -- 38,882
----- ---------
Total assets...................................... $ -- $ 62,283
===== =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
LIABILITIES:
Current liabilities:
Accounts payable............................................ $ -- $ 8,114
Due to related party........................................ -- 39,588
Accrued liabilities......................................... -- 320,436
Amounts due to stockholder and affiliates................... -- 106,476
----- ---------
Total current liabilities................................. -- 474,614
Amounts due to stockholder and affiliates, net of current... 783 1,000,000
----- ---------
Total liabilities................................. 783 1,474,614
----- ---------
COMMITMENT & CONTINGENCIES
STOCKHOLDER'S DEFICIT:
Common stock, no par value, 25,000 shares authorized,
1,000 shares issued and outstanding.................... 10 10
Deficit accumulated during the development stage.......... (793) (1,412,341)
----- ---------
Total stockholder's deficit....................... (783) (1,412,331)
----- ---------
Total liabilities and stockholder's deficit....... $ -- $ 62,283
===== =========
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The accompanying notes are an integral part of these financial statements.
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ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
UNAUDITED STATEMENTS OF OPERATIONS
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<CAPTION>
CUMULATIVE
FROM APRIL 2, 1998 FOR THE THREE FOR THE NINE FROM APRIL 2, 1998
(DATE OF INCEPTION) MONTHS ENDED MONTHS ENDED (DATE OF INCEPTION)
THROUGH SEPTEMBER 30, SEPTEMBER 30, THROUGH
SEPTEMBER 30, 1998 1999 1999 SEPTEMBER 30, 1999
------------------- ------------- ------------- ------------------
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Revenues................................... $ -- $ -- $ -- $ --
Expenses:
General and administrative............... 793 745,813 1,411,548 1,412,341
--------- --------- ---------- ---------
793 745,813 1,411,548 1,412,341
--------- --------- ---------- ---------
Loss before income taxes................... (793) (745,813) (1,411,548) (1,412,341)
Benefit from income taxes (Note 5)......... -- -- -- --
--------- --------- ---------- ---------
Net loss................................... $ (793) $ (745,813) $(1,411,548) $(1,412,341)
========= ========= ========== =========
Per share data (basic and diluted):
Net loss per share....................... $ (.00) $ (0.2) $ (.03) $ (0.3)
========= ========= ========== =========
Average common shares and common share
equivalents outstanding............... 49,450,000 49,450,000 49,450,000 49,450,000
========= ========= ========= =========
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The accompanying notes are an integral part of these financial statements.
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ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
UNAUDITED STATEMENTS OF CASH FLOWS
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<CAPTION>
FOR THE NINE CUMULATIVE
FROM APRIL 2, 1998 MONTHS ENDED FROM APRIL 2, 1998
(DATE OF INCEPTION) SEPTEMBER 30, (DATE OF INCEPTION)
THROUGH SEPTEMBER 30, 1998 1999 THROUGH SEPTEMBER 30, 1999
------------------------- ------------- ---------------------
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Cash flows used in operating
activities:
Net loss.......................... $(793) $(1,411,548) $(1,412,341)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation................... -- 9,687 9,687
Changes in assets and
liabilities
Accounts payable ........... -- 8,114 8,114
Accrued liabilities.......... -- 320,436 320,436
Amounts due to stockholder and
affiliates..................... -- 106,476 106,476
----- --------- ---------
Total adjustments......... -- 444,713 444,713
----- --------- ---------
Net cash used in operating
activities................ (793) (966,835) (967,628)
----- --------- ---------
Cash flows used by investing
activities
Capital additions................. -- (8,981) (8,981)
----- --------- ---------
Net cash flows used by
investing activities......... -- (8,981) (8,981)
Cash flows provided by financing
activities
Issuance of common stock.......... 10 -- 10
Amounts due to stockholder and
affiliates..................... 783 999,217 1,000,000
----- --------- ---------
Net cash flows provided by
financing activities........... 793 999,217 1,000,010
----- --------- ---------
Net change in cash and cash
equivalents....................... -- 23,401 23,401
Cash and cash equivalents at
beginning of period............... -- -- --
----- --------- ---------
Cash and cash equivalents at end of
period............................ $ -- $ 23,401 $ 23,401
===== ========= =========
Supplemental schedule of noncash
investing activities
Transfer of equipment from related
party.......................... $ -- $ 39,588 $ 39,588
===== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BUSINESS AND ORGANIZATION
ZAP.COM Corporation (formerly known as Zap Internetworks, Inc), a Nevada
corporation (the "Company", "ZAP.COM") was incorporated in April 1998 and is a
wholly-owned subsidiary of Zapata Corporation ("Zapata"). ZAP.COM is a
development stage company which was formed to engage in an Internet business
through the development of the ZapNetwork, which will be a network of third
party Web sites that deploy ZAP.COM's multifunctional banner, the Zap Box, (or
other Internet Prospectus which ZAP.COM may develop or acquire in the future)
on a perpetual basis through which ZAP.COM will distribute user content,
advertising and e-commerce opportunities. The Company has not yet commenced
significant operations, and its primary activity to date has been research and
investigation of Internet related opportunities and the development of the
Company's business model and the creation of its banner. In order to
successfully execute its business model, the Company must acquire and integrate
technology systems and infrastructure, contract with Web sites to join the
Company's network, and complete the public registration of its common stock. The
business model to be employed by the Company and its potential for profit is
unproven. The Company may not raise the necessary capital to fund the investment
needs of its business, thereby adversely effecting the Company's ability to grow
its network unless additional capital is obtained through debt or equity
financing. The Company anticipates incurring significant operating losses and
capital expenditures for the foreseeable future. The Company has adopted a
fiscal year-end of December 31.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are presented as if the Company had
existed as a corporation separate from Zapata Corporation for the periods
presented and include the historical assets, liabilities, revenues and expenses
that are directly related to the business that will comprise the Company's
operations.
General and administrative expenses reflected in the financial statements
include allocations of certain corporate expenses from Zapata for which
management took into consideration personnel, space, estimates of time spent to
provide services, or other appropriate bases. Management believes the foregoing
allocation of these costs were made on a reasonable basis; however, they do not
necessarily equal the costs which would have been or will be incurred by the
Company prospectively.
The financial information included herein may not necessarily reflect the
financial position and results of operations of the Company in the future or
what the financial position and results of operations of the Company would have
been had it been a separate, stand-alone company during the periods covered.
Property, Equipment and Depreciation
Property and equipment are stated at cost, less accumulated depreciation
provided on a straight-line method over the estimated useful lives of the
respective assets. The Company periodically evaluates its long-lived assets for
impairment if events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
Earnings Per Share
Statement of Financial Accounting Standards("SFAS") No. 128, "Earnings per
Share" requires presentation of basic loss per share and diluted loss per share
for all periods presented. If the warrants covering 2,000,000 and the options
covering 578,000 shares of the Company's common stock, respectively issued
subsequent to September 30, 1999 had been issued on or before that date, they
would have been excluded from the calculation because they would be
antidilutive.
Start-up Costs
In accordance with AICPA Statement of Position 98-5 -- Reporting on the
Costs of Start-up Activities, the Company expenses all start-up activities,
including organization costs, as they are incurred.
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Income Taxes
The Company utilizes the liability method to account for income taxes. This
method requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of existing temporary differences between the
financial reporting and tax reporting basis of assets and liabilities, and
operating loss and tax credit carryforwards for tax purposes. The Company is
included in Zapata's consolidated U.S. federal income tax return and its income
tax effects are allocated to the Company in proportion to its contribution to
consolidated taxable income.
A valuation allowance is provided to reduce the deferred tax assets to a
level which, more likely than not, will be realized. Primary factors considered
by management to determine the size of the allowance include the estimated
taxable income level for future years and the limitations on the use of such
carryforwards and expiration dates.
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 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.
NOTE 3. STOCKHOLDER'S DEFICIT
The Company was incorporated in April 2, 1998 as a wholly-owned subsidiary
of Zapata, through the issuance of 1,000 shares of no par value common stock. As
of September 30, 1999 and December 31, 1998, the Company has accumulated a
deficit during its development stage of $1,412,341 and $793, respectively. The
Company will continue to incur a development stage deficit until it begins its
planned operations, at which point, the Company will accumulate its operating
results in retained earnings.
In September 1999, Zapata advised the Company of the Zapata Board's
intention to declare a dividend, payable to its stockholders, of one share of
ZAP.COM common stock for every 50 shares of Zapata common stock on a record date
to be determined. On October 26, 1999, a record date of November 5, 1999 was
declared. The distribution was intended to be essentially ZAP.COM's initial
public offering, which has as its primary purpose the creation of a public
market for the Company's common stock and future access to public markets.
In November 1999, the Company amended and restated its Articles of
Incorporation to revise its capital structure. Subsequent to the amendment,
ZAP.COM's authorized capital stock will be: (1) 1,500,000,000 shares of ZAP.COM
common stock, par value $.001 per share and (2) 150,000,000 shares of preferred
stock, par value $.01 per share. The Company's Board of Directors approved a
49,450 for one stock split immediately prior to the distribution.
On November 12, 1999, Zapata distributed 477,742 shares of ZAP.COM common
stock to its stockholders. In connection with the distribution, Zapata provided
ZAP.COM with $9,000,000 as the capital contribution for its 49,450,000 shares of
ZAP.COM common stock it owned subsequent to a 49,450 for one stock split which
occurred on November 12, 1999 immediately prior to the distribution. The
contribution consisted of $8,000,000 in cash and the forgiveness of $1,000,000
of inter-company debt. At the same time, Malcolm Glazer and Avram Glazer
contributed $1,100,000 in exchange for 550,000 shares of ZAP.COM common stock.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment primarily consists of server and network equipment,
the majority of which was transferred from a wholly owned subsidiary of Zapata.
The equipment transfer was recorded at the cost basis of the assets to the
transferor of approximately $40,000 on the transfer date of February 28, 1999.
ZAP.COM depreciates these assets over their remaining useful life of
approximately 5 years. The company recorded depreciation expense of
approximately $10,000 for the seven month period ending September 30, 1999. No
depreciation expense was recorded for the period ended December 31, 1998.
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NOTE 5. INCOME TAXES
For Federal income tax purposes start-up costs must be amortized over not
less than 60 months. The Company has recognized a deferred tax benefit for
start-up costs to be amortized over 60 months for tax purposes. However, as it
is not more likely than not that the deferred tax asset will be utilized,
management has established a full valuation reserve of approximately $494,000.
NOTE 6. RELATED PARTY TRANSACTIONS
The Company has utilized the services of the management and staff of its
sole shareholder, Zapata, during its start-up period. The actual payroll and
related fringe benefit costs for these employees of approximately $261,000 was
allocated to the Company using a percentage of time analysis.
The Company also received server and network equipment from a related
entity to operate its Webspace, the ZapNetwork and related projects. The Company
recorded the assets at the cost to the transferor of approximately $40,000. No
gain or loss was recognized on the transaction.
During 1998, LFG, Inc. commenced a legal action against Zapata and Zap
Corp. (a wholly-owned subsidiary of Zapata and an affiliate of the Company). The
action alleged that Zapata and Zap Corp. were guilty of trademark infringement
and other federal and state statutes because of their use of Zap trade name and
the Internet domain name "Zap.com." In April 1999, Zapata and Zap Corp. reached
an agreement in principal with LFG that secured a general release from the
action in exchange for a cash payment and the furnishing of limited advertising
for LFP on Zap Corp.'s Web site for a two year period. Additionally, LFG agreed
not to sue or otherwise oppose the use by Zapata or its subsidiaries and
successors and assigns for the use of the "Zap" mark in connection with
specified activities including the use of the "Zap" mark in connection with the
Company's network.
As of and prior to September 30, 1999, ZAP.COM has satisfied all of its
startup and offering costs with borrowings from Zapata. Effective November 12,
1999, Zapata forgave $1,000,000 in intercompany debt from the Company pursuant
to the completion of the distribution. As a result, the Company has classified
amounts payable to shareholder and affiliates of $1,000,000 as of September 30,
1999 as a long term liability as the Company has the intent not to repay the
amounts in the next year. The remaining payable to Zapata of approximately
$100,000 at September 30, 1999 is classified as a current liability as it will
be repaid with proceeds from Zapata and the Glazer investments, respectively,
which occurred in November 1999.
On October 20, 1999, the Company granted to American Internetwork Sports
Company, LLC stock warrants in consideration for sports related consulting
services. American Internetwork Sports is owned by the siblings of the Company's
president and Chief Executive Officer, Avram Glazer. The Company will record
expense in accordance with FASB EITF 96-18. Accordingly, ZAP.COM will expense
based on the then current fair value of the warrants at the end of each
reporting period with adjustment of prior period expense to actual expense at
each vesting date. Due to the variable nature of this method, ZAP.COM cannot
predict the cost that will ultimately be recorded.
NOTE 7. OTHER SUBSEQUENT EVENTS
During April 1999, the Company's Board of Directors and sole stockholder
approved the Company's 1999 Long Term Incentive Plan. The 1999 Long Term
Incentive Plan provides that awards may be made thereunder of stock options,
restricted stock grants, stock appreciation rights and cash awards. At no time
may the stocks or the stock based awards under the Plan exceed 16% of the
Company issued and outstanding shares of common stock.
On April 12, 1999 the Company granted to persons who are or who will become
key executives or officers immediately following the Company's proposed rights
offering for the purchase of up to 755,000 shares of common stock at an exercise
price of $5.00 subject to the successful completion of the rights offering. The
rights offering was abandoned in September of 1999. In October 1999, the Board
amended the 1999 Incentive Plan to fix the number of shares subject to the plan
at 3,000,000 shares. Subsequently, on October 20, 1999, the Company granted
options to purchase
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up to 578,000 shares of ZAP.COM common stock at $2.00 per share to persons who
are ZAP.COM executives and key employees. These options will vest ratably on an
annual basis during the first three years following their issuance and have five
year terms. ZAP.COM will account for these options pursuant to the provisions of
APB Opinion No. 25, "Accounting for Stock Issued to Employees" and will comply
with the pro-forma disclosure provisions prescribed by Financial Accounting
Standards No. 123 "Accounting for Stock Based Compensation." In management's
opinion, the exercise price of the options are equal to the fair value at the
date of grant and accordingly, no compensation charge will be recorded by the
Company. However, ZAP.COM expects to disclose a one time non-cash pro-forma
compensation cost of approximately $300,000 ratably over three years determined
by using an option pricing model prescribed for non-public entities and the
following assumptions: the fair value of the Company stock at date of grant was
$2.00 the expected life of the options is 5 years, and the risk free interest
rate is 6.00%.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
OVERVIEW AND RESULTS OF OPERATIONS
ZAP.COM is a development stage company that intends to build and grow the
ZapNetwork, which will be a network of third party Web sites that deploy our
multifunctional banner, the ZapBox or other Internet properties that we may
acquire or develop on a perpetual basis through which Zap.com will distribute
user content, advertising and e-commerce.
From inception on April 2, 1998 through November 12, 1999, ZAP.COM operated
as a wholly-owned subsidiary of Zapata. On November 12, 1999, ZAP.COM became a
public company when Zapata distributed 477,474 shares of our common stock to its
stockholders.
Since its inception, ZAP.COM's operations consisted primarily of
organizational and capital raising activities, research and analysis with
respect to the Internet industry, creating and launching our homepage at
www.zap.com and ZapBox 1.0 and, the development of strategic and commercial
relationships.
Our limited operating history makes it difficult to evaluate our business
and prospects. You must consider our prospects in light of the risks, expenses
and difficulties frequently encountered by companies in their early stage of
development, operating within the relatively new and rapidly evolving Internet
environment. Our risks include, but are not limited to, an evolving and
unpredictable business model, proper management of our growth, the
implementation of our banner, the establishment of strategic and commercial
relationships, increasing our employee base, building and maintaining the
ZapNetwork, attracting and retaining customers, and the anticipation of and
adaptation to changes in our market and competitive developments. We cannot
assure anyone that we will be successful in addressing these or any other risks,
and our failure to do so could have a material adverse effect on our business,
financial condition and results of operations.
As of September 30, 1999 ZAP.COM had generated no revenues and had incurred
expenses and a cumulative operating loss of approximately $1,412,000 from date
of inception, consisting primarily of payroll, legal, accounting and consulting
fees. Of this amount, approximately $325,000 is attributable to the rights
offering that ZAP.COM abandoned during September 1999. Since its inception,
Zapata has provided ZAP.COM with all of the administrative personnel and
services which it has required.
ZAP.COM does not presently have any source of revenue. ZAP.COM's ability to
generate revenue will depend on its ability to contract with Web sites to
participate in the ZapNetwork and to successfully market its banner to
customers. ZAP.COM cannot predict whether Web site owners will want to join the
ZapNetwork. If ZAP.COM is unable to attract a sufficient number of Web site
owners to its network, it will not be able to commence sales or generate
revenues or sufficient revenues to become profitable.
In November 1999, Zapata contributed to ZAP.COM $8,000,000 in cash and
confirmed its forgiveness of $1,000,000 in inter-company debt. The entire
contribution was allocated to the ZAP.COM common stock held by Zapata. Also in
November 1999, Malcolm Glazer and Avram Glazer contributed $1,100,000 in cash as
payment for 550,000 shares of ZAP.COM common stock.
ZAP.COM expects that during the remainder of 1999 and in the year 2000 it
will significantly increase the levels of its expenditures in connection with
the development of a supporting infrastructure and network, the hiring of
additional employees and the expansion of its business. Further, during this
period, ZAP.COM also anticipates that it will have significant charges against
earnings from the consideration to be paid Web site owners who join the
ZapNetwork and from stock issued in connection with promotions or other events.
Currently, ZAP.COM does not have any agreement, understanding or arrangement
with any Web site owners to join the network. At any given time, however, we may
be in discussions or negotiations regarding any of these opportunities.
On October 20, 1999, ZAP.COM granted to persons who are ZAP.COM executives
or key employees options to purchase up to 578,000 shares of ZAP.COM common
stock at $2.00 per share exercise price. In addition, on October 20, 1999
ZAP.COM granted American Internetwork Sports stock warrants for the purchase of
up to 2,000,000 shares of ZAP.COM common stock at a $2.00 per share exercise
price in consideration for a three year commitment to provide sports related
consulting services. These options and warrants will generally vest ratably on
an annual basis during the first
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three years following their issuance and will have five year terms. ZAP.COM will
account for these options pursuant to the provisions of APB Opinion No. 25
"Accounting for Stock Issued to Employees" and will comply with the pro-forma
disclosure provisions prescribed by Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation". In management's opinion, the exercise
price of the options is equal to or below the fair value of the date of grant
and accordingly, no compensation charge will be recorded by the Company.
However, ZAP.COM will report a pro-forma one-time non-cash compensation charge
of approximately $300,000 ratably over the vesting period determined by using
an option pricing model prescribed for non-public entities and the following
assumptions: the fair value of ZAP.COM's stock at date of grant was $2.00, the
expected life of the options is 5 years, and the risk-free interest rate is
6.00%.
In the case of the warrants granted to American Internetwork Sports,
ZAP.COM will record expense in accordance with FASB Emerging Issues Task Force
No. 96-18. Accordingly, ZAP.COM will record expense based on the then current
fair value of the warrants at the end of each reporting period with adjustment
of prior period expense to actual expense at each vesting date. Due to the
variable nature of this method, ZAP.COM cannot predict the cost that it will
ultimately record in connection with these warrants.
Until ZAP.COM begins to recognize revenue from operations, it will continue
to be considered in the development stage. ZAP.COM anticipates that, for the
foreseeable future, it will incur substantial operating losses and negative cash
flow as it executes its business model and acquires and integrates the necessary
technology, systems and supporting infrastructure, increases the number of Web
sites participating in its network, develops the brand name of its products and
services and expands its business. The extent of these losses will depend, in
part, on the amount and rates of growth in our revenue from advertisers,
e-commerce relationships and other customers. As a result, we will need to
generate significant revenue if profitability is to be achieved. To the extent
that revenue does not grow at anticipated rates or that increases in our
operating expenses precede or are not subsequently followed by commensurate
increases in revenue, if we are unable to adjust operating expense levels
accordingly, our business, results of operations and financial condition will
be materially and adversely affected. There can be no assurance that our
operating losses will not increase in the future or that we will ever achieve
or sustain profitability.
We believe that our revenue will be influenced by seasonal fluctuations
because advertisers, who we expect to initially compose most of our customers,
generally place fewer advertisements during the first and third calendar
quarters of each year. In addition, expenditures by advertisers tend to be
cyclical, reflecting overall economic conditions as well as budgeting and buying
patterns. In addition, our operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are beyond our
control.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, ZAP.COM had approximately $23,000 in cash and
cash equivalents. In November 1999, Zapata contributed to ZAP.COM $8,000,000 in
cash and confirmed its forgiveness of $1,000,000 in inter-company debt, the
proceeds of which ZAP.COM used in connection with start-up costs and costs
incurred in connection with capital raising activities. Also in November 1999,
Malcolm Glazer and Avram Glazer contributed $1,100,000 in cash as payment for
550,000 shares of ZAP.COM common stock. ZAP.COM expects to use the proceeds from
these contributions to fund development of the ZapNetwork and anticipated
operating losses and for general corporate purposes.
As of the date of this filing ZAP.COM does not have a source of revenues
and it does not expect to begin recognizing revenues until the ZapNetwork has
grown to a size which makes sales commercially feasible. We cannot predict when
ZAP.COM will commence sales or begin to recognize revenues.
ZAP.COM expects to incur significant negative cash flow from operations for
at least the first 12 months following the date of this prospectus. ZAP.COM,
however, currently expects that the proceeds from the investments made by Zapata
and the Glazers will be sufficient to support its growth and operations during
at least this 12 month period. However, additional capital could be required in
the next 12 months if unexpected costs arise or if we pursue ventures that
enhance or accelerate
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our business development. If additional capital requirements arise, we may need
to raise additional funds.
On November 12, 1999, Zapata distributed to its stockholders 477,742 shares
of our common stock. Our common stock is currently quoted in the OTC Electronic
Bulletin Board under the symbol "ZPCM". We cannot assure you that the trading
market for our stock will be sustained at its current levels or that a more
active trading market for our common stock will develop.
As part of its business strategy, ZAP.COM plans to make payments of cash,
common stock or other securities or a combination of these to Web site owners
who join the ZapNetwork. We expect to file a shelf registration statement
covering 50,000,000 shares of common stock for these issuances and, if
necessary, the public resale of these shares. If Web site owners are unwilling
to accept ZAP.COM common stock, ZAP.COM may need to raise additional funds.
We cannot guarantee that ZAP.COM will be able to raise sufficient capital
if additional funds are necessary, or, if it can, that it will be able to do so
on terms that it deems acceptable. In particular, potential investors may be
unwilling to invest in ZAP.COM due to Zapata's voting control over ZAP.COM and
the significant potential for percentage dilution of a potential investor's
percentage ownership in our common stock presented by our business model.
Zapata's voting control may be unattractive because it makes it more difficult
for a third party to acquire us even if a change of control could benefit our
stockholders by providing them with a premium over the then current market price
for their shares. Failure of ZAP.COM to raise funds required to support the
growth of its network would have a material adverse effect on ZAP.COM's business
and its ability to generate and grow revenues and could result in a complete
loss in the value of ZAP.COM common stock being offered with this prospectus. If
we raise additional funds through the issuance of equity, equity-related or debt
securities, these securities may have rights, preferences or privileges senior
to those of the rights of our common stockholders, who would then experience
dilution.
YEAR 2000
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with Year 2000 requirements or risk system failure
or miscalculations causing disruptions of normal business activities.
State of Readiness. The only software and hardware currently employed by
ZAP.COM consist of a financial accounting package and two servers, all of which
are Year 2000 compliant. ZAP.COM's business, however, will be largely dependent
on software and computer technology potentially subject to Year 2000 issues.
ZAP.COM has and continues to plan to assess the Year 2000 readiness of the
information technology ("IT") systems that it will be acquiring or that will be
employed by third party service providers, including the hardware and software
that enable delivery of data and programming to the ZapNetwork, and its non-IT
systems. Prior to purchasing any hardware or software or engaging a third party,
ZAP.COM has, and will continue to, assess, with the help of consultants, whether
components which it proposes to purchase or which are to be employed by third
party service providers will properly recognize dates beyond December 31, 1999.
ZAP.COM does not anticipate that any hardware or software that it has or will
purchase or license will have material problems in this regard as it will only
purchase or license current versions of hardware and software provided by major
vendors. Moreover, ZAP.COM has, and plans to continue to, secure appropriate
contractual assurances from its software and hardware vendors and third party
service providers that their software and hardware solutions are Year 2000
compliant. However, future guarantees of Year 2000 compliance may be impossible
or too costly to obtain and we may find it necessary to obtain software or
hardware which could experience a failure due to Year 2000 issues.
ZapNetwork site participants may also be impacted by Year 2000
complications. Any failure by our network participants to make their sites Year
2000 compliant could result in an inability to deliver programming to the
participant's sites. If a material number of network participants experience
that trouble, it could have a material adverse effect on ZAP.COM's business and
operations.
12
<PAGE> 13
Costs. To date, ZAP.COM has minimal expenditures in connection with
identifying or evaluating Year 2000 compliance issues.
Risks. ZAP.COM is not currently aware of any Year 2000 compliance problems
relating to the IT or non-IT systems which it or third party service providers
plan to employ that would have a material adverse effect on its business,
prospects, results of operations and financial condition. We cannot guarantee
that ZAP.COM will not discover Year 2000 compliance problems in hardware or
software that it acquires or that is used by third party service providers which
will require substantial revisions or replacements, all of which could be time
consuming and expensive. The failure of ZAP.COM to fix or replace third party
software, hardware or services on a timely basis could result in lost revenues,
increased operating costs, the loss of customers and other business
interruptions, any of which could have a material adverse effect on ZAP.COM's
business and results of operations and financial condition. Moreover, the
failure to adequately address Year 2000 compliance issues in its IT and non-IT
systems could result in claims of mismanagement, misrepresentation or breach of
contract and related litigation, which could be costly and time consuming to
defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third party service providers and others
outside ZAP.COM's control will be Year 2000 compliant. The failure by these
entities to be Year 2000 compliant could result in a systemic failure beyond the
control of ZAP.COM, like a prolonged Internet, telecommunications or electrical
failure, which could also prevent ZAP.COM from delivering its services to its
customers, decrease the use of the Internet or prevent users from accessing the
ZapNetwork sites, which could have a material adverse effect on ZAP.COM's
business, prospects, results of operations and financial condition.
Contingency Plan. ZAP.COM does not have any Year 2000 contingency plans.
Our failure to develop and implement, if necessary, an appropriate contingency
plan could materially adversely affect our business and results of operations.
13
<PAGE> 14
PART II. -OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
14
<PAGE> 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ZAP.COM CORPORATION
(Registrant)
December 15, 1999 By: /s/ LEONARD DISALVO
-------------------
(Vice President and Chief
Financial Officer)
16
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