ZAP COM CORP, 10-K405, 2000-03-30

ZAP COM CORP
10-K405, 2000-03-30
ADVERTISING

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 000-27729

ZAP.COM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

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NEVADA 76-0571159
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER
INCORPORATION OR ORGANIZATION)

100 MERIDIAN CENTRE, SUITE 350 14618
ROCHESTER, NEW YORK 14618 (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (716) 242-8600
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

TITLE OF EACH CLASS

COMMON STOCK, $0.001 PAR VALUE
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On March 16, 1999, there were outstanding 50,000,000 shares of the
Company's Common Stock, $0.001 par value. The aggregate market value of the
Company's Common Stock held by non-affiliates of the Company is $7,699,561,
based on the closing price in trading on March 16, 2000 for the Company's Common
Stock as reported on the National Association of Securities Dealers over the
counter bulletin board. For the sole purpose of making this calculation, the
term "non-affiliate" has been interpreted to exclude the directors and corporate
officers and holders of 5% or more of the Company's Common Stock. Such
interpretation is not intended to be, and should not be construed as, an
admission by the Registrant or such directors or corporate officers that such
directors or corporate officers are "affiliates" of the Registrant, as that term
is defined in the Securities Act of 1933.

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] or No [ ].

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrant's Information Statement for its 2000 Annual
Meeting of Stockholders, which will be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, not later than 120 days after December
31, 1999, are incorporated by reference in Part III (Items 10, 11, 12 and 13) of
this Form 10-K. [ ]
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TABLE OF CONTENTS

PART I

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PAGE
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Item 1. Business.................................................... 2
General..................................................... 2
Recent Events............................................... 2
Industry.................................................... 2
The Zap.Com Solution........................................ 4
Business Strategy........................................... 4
Building the ZapNetwork..................................... 5
Web Site Owner Recruiting................................... 6
Products and Services....................................... 6
Domain Names................................................ 7
Operating Infrastructure and Technology Platform............ 8
Sales, Marketing and Customer Service....................... 8
Strategic Partnerships & Relationships...................... 8
Employees................................................... 9
Intellectual Property....................................... 9
Competition................................................. 10
Government Regulation and Legal Uncertainties............... 11
Item 2. Properties.................................................. 13
Item 3. Legal Proceedings........................................... 14
Item 4. Submission of Matters to a Vote of Security Holders......... 14

PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 15
Item 6. Selected Financial Data..................................... 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 17
General..................................................... 18
Liquidity and Capital Resources............................. 19
Results of Operations....................................... 20
Year 2000................................................... 21
Significant Factors That Could Affect Future Performance and
Forward Looking Statements.................................. 21
Item 7.A. Quantitative and Qualitative Disclosure About Market Risk... 37
Item 8. Financial Statements and Supplementary Data................. 38
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 51

PART III
Item 10. Directors and Executive Officers of the Registrant.......... 51
Item 11. Executive Compensation...................................... 51
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 51
Item 13. Certain Relationships and Related Transactions.............. 51

PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 51
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The page numbers in this Table of Contents reflect actual page numbers not EDGAR
page tag numbers.

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FORWARD-LOOKING STATEMENTS

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. This document contains certain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company
intends such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995, and includes this statement for purposes of such
safe harbor provisions. Forward-looking statements, which are based upon certain
assumptions and describe future plans, strategies and expectations of the
Company, are generally identifiable by use of the words like "may," "will,"
"should," "expect," "anticipate," "estimate," "plan," "intend," "believe,"
"predicts," potential," "continue" and the negative of such terms or other
similar or comparable terminology. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot assure you
that our expectations will be correct. These statements involve known and
unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance, or
achievements expressed or implied by these forward-looking statements. These
risks and uncertainties, including, without limitation, the risks set forth
under the caption "Significant Factors that Could Affect Future Performance and
Forward-Looking Statements" appearing in Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Company assumes
no obligation to upgrade forward-looking statements.
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PART I

ITEM 1. BUSINESS

GENERAL

Zap.Com Corporation was founded to create and operate a global network of
independently owned Web sites that attract a diverse audience of Internet users.
Our goal is to make the ZapNetwork a leading advertising and e-commerce platform
by aggregating Internet users who frequent Web sites that are often overlooked
by Internet advertisers. We plan to pursue this goal by offering a variety of
services and benefits to users, Web site owners, advertisers and merchants that
participate in the ZapNetwork. We will provide these services by deploying our
proprietary Web application, the ZapBox on all ZapNetwork member sites on a
perpetual basis.

Zap.Com was incorporated in Nevada in 1998. Zap.Com's principal corporate
offices are located at 100 Meridian Centre, Suite 350, Rochester, New York 14618

RECENT EVENTS

Prior to November 12, 1999, we were a wholly-owned subsidiary of Zapata
Corporation (NYSE: ZAP). On November 12, 1999, Zapata distributed 477,742 shares
of our common stock to its stockholders leaving Zapata holding 98% of Zap.Com's
common stock. On November 30, 1999, our stock began to trade on NASD's OTC
Electronic Bulletin Board. In connection with the distribution, Zapata provided
us with $9,000,000 as its capital contribution for 49,450,000 shares of our
common stock. The contribution consisted of $8,000,000 in cash and the
forgiveness of $1,000,000 of inter-company debt, which represented Zap.Com's
organizational and development costs previously paid by Zapata. In addition, in
November 1999 our President and Chief Executive Officer, Avram Glazer, and his
father, Malcolm Glazer, who owns approximately 44% of Zapata's outstanding
common stock, contributed $1,100,000 to us in exchange for 550,000 shares of our
common stock.

On March 14, 2000 we commenced solicitation of Web site owners to join the
ZapNetwork and grant us certain rights with respect to their Web sites. This
followed the declaration by the Securities and Exchange Commission ("SEC") on
March 3, 2000, of the effectiveness of our registration statement on Form S-1,
covering 20,000,000 share of our common stock (the "Offering Registration"). We
intend to compensate Web site owners who join the ZapNetwork with payments of
Zap.Com stock issued in this offering. Please see Item 1. "Business -- Business
Strategy." As of the date of this document, we intend to sell shares in the
offering only to Web site owners residing in the States of Colorado, Delaware,
Florida, Georgia, Idaho, Illinois, Louisiana, Mississippi, Nevada, New York,
Oregon, Rhode Island, South Carolina, Utah, Washington, Wisconsin and Wyoming.
We have filed appropriate registrations for this offering in all of the other
states (except Texas) but these registrations are not yet effective and there
can be no assurance that they will become effective. We intend to commence
solicitation of Web site owners in additional states in which the registrations
become effective.

Our registration statement, which the SEC declared effective on March 3,
2000, also covers up to an additional 30,000,000 shares of our common stock,
which may be issued from time to time as payment for all or some portion of the
purchase price for one or more acquisitions of companies, businesses or assets
complementary to Zap.Com's existing business (including future acquisitions of
rights granted with respect to one or more Web sites) or which may be offered in
connection with promotion or similar events or for sale or other distribution by
persons who require such shares in the acquisitions or promotional events or by
the donees of such person or by other persons acquiring such shares (the "Shelf
Registration").

INDUSTRY

The Internet's rapid growth since its first commercialization in the late
1980's, is expected to continue for the foreseeable future. We believe that the
number of Web users will grow from 111 million in the United States and over 219
million world wide in July 1999 to over 230 million in the United States and
over 600

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million world wide by the end of 2003. In addition, due in part to the Web's
open nature, the number of Web sites has been proliferating at a rapid pace.
Zap.Com believes that as of February 2000, the number of Internet domains (.com,
.net, .edu and .org) had grown to approximately 8.1 million.

With the explosion in both the number of users and Web sites, the Internet
has emerged as a significant communications medium. This has resulted in more
and more businesses using the Internet as a sales and distribution channel for
commercial activities and as an information resource. To date, commercial
applications on the Internet have involved mostly commerce, advertising and
direct marketing.

E-commerce has grown as a result of the increase in traffic, user's
willingness to conduct on-line transactions and the types of products and
service being distributed over the Internet. Consumers now trade securities, pay
bills, purchase airline tickets, insurance, mortgages and consumer goods, among
others, over the Internet. Zap.Com believes that this growth will continue with
a projected increase in business to consumer e-commerce sales from an estimated
$24.0 billion in 1999 to $75.0 billion in 2003.

Dissemination of content, like newspapers, magazines and journals, through
the Web has also experienced significant growth because of both the growing
popularity of the medium and the attractiveness of Web-based advertising to the
customers of content publishers. On-line advertising provides advertisers with
the ability to target their messages to select audiences with specific interests
and characteristics and to quickly modify a program's cost effectively in
response to information received from dialogue with customers. The Web also
allows the measurement of the effectiveness and response rates of advertisements
and the tracking of the demographic characteristics of Web users, which tend to
have attractive profiles. These valuable tools have not been lost on traditional
advertisers, like consumer product companies and automobile manufacturers, who
are increasing their use of on-line advertising. Zap.Com believes that the
dollar value of Internet advertising in the United States will increase from an
estimated $3.2 billion in 1998 to $11.5 billion in 2003.

Internet-based direct marketing has also experienced rapid growth. The
Internet allows point-of-sale promotions to be targeted to consumers and better
evaluated based on the response rate of consumers (e.g., number of leads, number
of sales or transactions as a percentage of promotions viewed, etc.). Direct
marketers have the opportunity through the Internet to increase consumer
response rates and decrease costs-per-transaction by high impact targeting and
delivering of their campaigns. This can be much more cost efficient to the
direct marketer than traditional mediums. Zap.Com believes that approximately
$163 billion was spent on direct marketing initiatives in the United States in
1998.

While the Web offers numerous opportunities, potential advertisers and
e-commerce companies face a number of significant challenges to realizing this
potential. These challenges arise from the fact that there are millions of Web
sites (only a fraction of which are of significant size), the significant
breadth of content available on the Web and the costs of transacting
individually with a number of smaller, but desirable sites in order to reach a
larger on-line audience. In addition, small Web sites do not typically maintain
the special analytical tools that are necessary to evaluate and optimize the
effectiveness of information delivery and to target appropriate users. Many of
these Web sites also lack the technology to deliver information to a broad reach
of Internet users. Potential advertisers and e-commerce companies seek to
overcome these challenges by outsourcing their on-line needs to media
representative firms whose business is to coordinate the sale of the on-line
inventory of a number of related or unrelated Web sites.

Web site owners face equally daunting challenges in capitalizing on the
economic opportunities presented by the Web. Typically, Web site owners attempt
to support, or profit from, their Web sites by selling Internet advertising or
other commercial uses of their inventory. Many Web site owners who are too small
or lack brand name value to justify an internal sales force or to attract the
attention of a media representative firm, however, find this difficult because
they do not have the resources necessary to employ, train and manage a sales
force or to compete for experienced personnel in this highly competitive
environment. As of December 1999, Zap.Com believes that 75% of Internet
advertising dollars go to the 5 mostly highly trafficked Web sites and that 95%
of the Internet advertising dollars go to the 50 mostly highly trafficked Web
sites. Further, many Web site owners cannot afford, or do not have the ability
to operate and maintain, the servers and technology necessary for targeted
information delivery. Many Web site owners are unable to secure advertising

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from, or to service those persons who purchase on-line inventory. As a result,
many Web site owners seek to outsource sales of their on-line inventory.

Several business models have evolved to address the challenges faced by
both Internet advertisers and others wishing to engage in Internet-based
commercial activities and Web site owners. These models generally focus on
centralizing the point of sale to the Web sites in one entity, which creates
synergies for, and streamlines distribution and marketing operations of, Web
sites belonging to the network and provides for more effective placement of
advertisement.

One business model involves organizations that act as advertising
representatives for sites. These firms coordinate and facilitate the
distribution of a customer's advertising on-line inventory over a large network
of third party sites with high brand value, including premium Web sites. Some
Internet search and navigational sites as well as Web site owners who offer a
significant amount of content through their sites employ a model, which involves
the distribution of advertising banners over a family of Web sites owned by
them. Also, Web advertising companies are available which focus on technologies
or services that allow companies to track and manage their own advertising
campaigns or inventory. Another model is the "associate program" in which any
Web publisher receives a referral fee for purchases originating from the
publisher's Web site from a button that hyperlinks to the Web publisher's
e-commerce site.

THE ZAP.COM SOLUTION

Zap.Com plans to employ a business model that it believes addresses, in a
unique and effective manner, both the challenges faced by Web site owners and
advertising and e-commerce companies who desire to benefit from the Internet.
This model is similar to existing business models in that it involves the
creation of a network, however, it differs in that Zap.Com plans to acquire
perpetual rights (subject to payment obligations) to space on independent Web
sites where it will deploy the ZapBox, while the site's publisher retains the
rights to all other aspects of the Web site.

Zap.Com believes that its network structure will provide it with the
benefits of both a potentially large and wide reaching network while retaining
the individual creative talents of the Web site owners who belong to our
network. Zap.Com further believes that this network structure will be attractive
to Web site owners because, among other things, they will receive a direct
economic benefit while retaining ownership and control of all aspects of their
Web site not involving the ZapBox and have the potential to increase their
traffic as a result of belonging to the network.

BUSINESS STRATEGY

To implement its business model, Zap.Com plans to pursue the following key
elements:

Build the ZapNetwork. In order to reach a substantial audience, Zap.Com
will seek to aggregate a significant number of independent Web sites for its
network. Zap.Com intends to pursue Web sites that have appealing and diverse
content, have an attractive base of unique users and meet other criteria
established by Zap.Com. Zap.Com plans to compensate Web sites for joining the
ZapNetwork with payments of Zap.Com common stock.

Deploy the ZapBox. Zap.Com intends to deploy the ZapBox in the space
acquired on the Web sites which join the ZapNetwork. The ZapBox is our
proprietary Web application that provides portal-like functionality and content,
such as news, sports, weather and horoscopes wrapped around an Internet
advertising banner.

Build Multiple Revenue Streams. Zap.Com intends to seek revenue from
multiple sources, including advertising, e-commerce and other commercial
activities. Zap.Com intends to achieve its revenue objectives by: (1)
establishing and expanding a user base; (2) establishing the ability to target
advertising, e-commerce and other commercial programming to demographically
distinct user groups; (3) creating revenue-sharing commerce relationships; and
(4) entering into relationships with third-party content providers that pay
Zap.Com for access to its users.

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Establish and Build Brand Loyalty. Zap.Com intends to advertise and
promote its brands to potential advertising and e-commerce customers. Zap.Com
plans to pursue this strategy through a variety of marketing and promotional
techniques, which may include on-line and off-line advertising, conducting a
public relations campaign and developing business alliances and relationships.

Develop Strategic and Commercial Relationships. Zap.Com intends to develop
and continue strategic and commercial relationships with third parties that will
facilitate the execution of its business plan, like a media representation firm,
an on-line inventory management company, Web site developers, Web site hosts,
content providers, e-commerce and traditional businesses and other
organizations. While Zap.Com may develop the ability to render some of these
services internally, it also intends to continue developing strategic and
commercial relationships to assure itself of adequate access to these services
for the foreseeable future.

Create a Superior Economic Model. Zap.Com believes that the business model
which it plans to use has inherent economic advantages over other Internet
networks. The ZapNetwork agreement which all Web sites joining the ZapNetwork
must enter into reduces the risk of network participant turnover, maximizes the
flexibility of the ZapBox for promotional and commercial activities and creates
a potentially favorable cash flow model due to Zap.Com's right to retain all
ZapNetwork generated revenues while alleviating it of the expenses and
organizational complexities of operating and supporting a network of
company-owned Web sites. Zap.Com believes that this strategy will result in a
highly scalable business platform, from which it expects to be able to generate
multiple revenue sources.

BUILDING THE ZAPNETWORK

Zap.Com's goal is to build the ZapNetwork into a global network of
independently owned Web sites that will deploy the ZapBox. Zap.Com will seek to
attract Web sites to its network primarily through the benefits of the ZapBox
and the payment of Zap.Com common stock to Web site owners. Please see Item 1.
"Business -- Web Site Owner Recruiting."

Zap.Com has taken a variety of information into account in developing the
price which it will pay for the rights it seeks to acquire with respect to these
independent Web sites. One source is information Zapata provided to Zap.Com
which was compiled during Zapata's previous efforts to enter the Internet
market. This information includes prices which various private Web sites were
willing to be bought relative to various site performance measures. The second
source is the market valuation of public companies that operate Web sites
relative to their reported traffic.

Zap.Com's ability to pay Web site owners for joining the ZapNetwork will
largely depend upon the development of an orderly trading market in Zap.Com's
common stock. Since November 30, 1999, the trading in Zap.Com's common stock has
been thin. If an orderly trading market does not develop in Zap.Com's common
stock, then Web site owners may be reluctant to accept stock as payment for
joining the ZapNetwork and Zap.Com will have to raise additional capital in
order to fund the growth of its network. Zap.Com cannot guarantee that an
orderly trading market will develop in its stock or that, if necessary, it will
be able to raise any, or a significant amount of additional capital. If either
of these events occur, Zap.Com may be unable to grow the ZapNetwork.

When Zap.Com issues stock in connection with the acquisition of Web site
rights, the percentage of common stock owned by existing stockholders will
experience dilution. These acquisitions will also negatively impact net income
due to non-cash charges which Zap.Com expects to record against earnings
following their consummation.

The ZapNetwork currently consists of Zapata's www.word.com, www.charged.com
and www.pixeltime.com and Zap.Com's home page, www.zap.com. Zapata has agreed to
continue this arrangement until it is terminated by Zapata at its discretion. No
legal or other financial obligations exist between Zapata and Zap.Com with
respect to this arrangement. We are currently using this network as a beta
testing environment for the development of the ZapBox and its underlying
technologies.

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WEB SITE OWNER RECRUITING

Zap.Com believes that as of February 2000 over 8.1 million Internet domains
existed. As a result, Zap.Com believes there are a number of Web sites that are
viable candidates for the ZapNetwork. Although some highly desirable sites have
already entered into network arrangements with third parties which commits their
on-line advertising inventory, Zap.Com believes that many of these arrangements
are non-exclusive or are terminable by Web site owners, making these sites
candidates for the ZapNetwork.

Zap.Com anticipates that the ZapNetwork will be attractive to Web site
owners because it may, among other things, allow them to:

- recognize direct value for their audience without giving up ownership or
editorial control of their Web sites other than the space occupied by the
ZapBox or another Zap.Com Internet property;

- increase the value of their remaining rights to their Web sites to
potential customers and acquirers as a result of potential increased
traffic through cross-promoting and cross-linking with the ZapNetwork and
potential increased "stickiness" on their Web site as a result of the
ZapBox:

- have the opportunity to participate in Zap.Com's potential future
appreciation after receiving Zap.Com common stock as part of the
consideration for joining the ZapNetwork.

Zap.Com also believes that its network will be attractive to a number of
Web site owners because many small and medium-sized Web sites do not have, or
have limited, internal sales, billing, tracking and reporting capabilities. By
joining the ZapNetwork, these sites will not need these capabilities to
recognize value for their sites because Zap.Com will have responsibility for
placement and reporting of the use of the banner space.

Zap.Com does not initially intend to recruit or limit participation in its
network to any particular type of Web site. In order to be eligible to join the
ZapNetwork, an applicant must, among other things, own and maintain Web sites,
which meet minimum unique user requirements and do not, in Zap.Com's opinion,
display objectionable content. Zap.Com, however, will have sole discretion to
determine whether a Web site may join its network.

Zap.Com expects a significant number of Web site owners to apply to join
the ZapNetwork. Zap.Com, however, has not confirmed this assumption. Zap.Com
cannot guarantee you that any Web sites will want to join the ZapNetwork or that
if any do, that a sufficient number would join the ZapNetwork so that Zap.Com
can generate revenues, or do so at a level necessary to become profitable or
generate a positive cash flow.

These rights will entitle Zap.Com to have at all times the ZapBox, or any
other Internet properties we acquire or develop, appear and be immediately and
fully apparent and prominently displayed without scrolling on each and every
page of it's Web site within a defined area. The agreement provides that we will
have sole control and discretion over all aspects of the Internet property
deployed on the Web site, but that the Web site owner will retain control over
all other aspects of the Web site.

PRODUCTS AND SERVICES

Zap.Com's main product will initially be the ZapBox, a proprietary Web
application which will be deployed on Web sites that join the ZapNetwork.
Zap.Com provides a variety of content on the ZapBox. This content is made
available in various forms of media, including graphics, animations, sound, text
and user prompted interactions and is expected to offer search capabilities,
general and channel-based content and community features, like chat rooms and
e-mail, etc. and display advertisement, e-commerce and other commercial
opportunities. The ZapBox permits users to click back to the Zap.Com home page
or to other

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sites in the ZapNetwork. The links in the ZapBox will provide users numerous
access points to the ZapNetwork which should enhance the traffic of Web sites
that belong to our network. ZapBox 1.0, which was launched September 27, 1999,
lets users search, send us feedback through e-mail, link to the Zap.Com home
page and to other sites in the ZapNetwork. ZapBox 2.0 was launched on January 7,
2000 and added access to news, weather, sports and horoscopes as well as
personalization capabilities. In addition, ZapBox 2.0 includes a rich media demo
to familiarize new users with the ZapBox.

Zap.Com has entered into an arrangement with Auragen Communications to
develop the ZapBox, with iSyndicate, Inc. to deliver content and functionality
for the ZapBox and with Direct Hit Technologies for search capabilities for the
ZapBox and Zap.Com's homepage. Although ZapBox 1.0 and ZapBox 2.0 have been
created and launched, we cannot predict when other releases, offering enhanced
functionality, will be available or whether we will encounter difficulties in
deploying the ZapBox across the ZapNetwork.

Zap.Com will also seek to design its network so that customers can benefit
from the dynamic matching, targeting and delivering functionality available on
the technology which will serve its network. If successful, customers should be
able to customize their delivery on the ZapNetwork through the ZapBox within
specific categories of interest, on specific Web sites, or by targeting based on
a variety of factors, including user interest, keyword choice and user
geographical location.

Zap.Com will be responsible for all aspects of the ZapBox or other Zap.Com
Internet properties, which are deployed on ZapNetwork sites, including displayed
content and advertising and e-commerce opportunities. Thus, Zap.Com will have
the responsibility for programming and sales and marketing of these properties,
while ownership of, and responsibility for, all other aspects of ZapNetwork Web
sites will continue with the Web site owners.

Zap.Com maintains a home page at www.zap.com that links to what Zap.Com
believes to be some of the Internet's most popular Web properties. These links
are categorized into interest specific categories like news, sports,
entertainment, weather, finance, current events and travel. As the ZapNetwork
grows, it will act as a directory to the sites in the network. Zap.Com plans to
divide the Web sites that belong to the ZapNetwork into channels that segregate
sites according to topic or audience groups. The home page is also expected to
continue to display the then most recent release of the ZapBox.

DOMAIN NAMES

Domain names are Internet "addresses." Zap.Com is currently the registered
holder of 60 Internet domain names. The most important of these domain names is
www.zap.com, which is the URL for our home page. The purpose to registering the
domain names other than www.zap.com is to provide a medium through which Zap.Com
can execute marketing activities. As of the date of this document, we have not
developed operational sites for most of these other 59 domain names. These sites
would support and compliment the content of ZapNetwork sites.

Third parties have in the past and Zap.Com expects that third parties will
in the future challenge Zap.Com's right to domain names registered in its name.
Zap.Com cannot guarantee that it will succeed on these claims.

The allocation and governance of domain names is generally regulated by
Internet regulatory bodies like Network Solutions, Inc. These Internet
regulatory bodies promulgate rules and regulations regarding domain names, which
may change from time to time. The relationship between Internet regulatory
bodies, the allocation and governance of domain names and laws protecting
trademarks/service marks and similar proprietary rights is unclear and is in
flux. The current system for registering, allocating and managing domain names
has been the subject of much litigation, including trademark/service mark
litigation, unfair competition and dilution litigation. Therefore, we cannot
guarantee that Zap.Com's domain names will not lose their value, or that Zap.Com
will not have to obtain entirely new domain names in addition to or in lieu of
its current domain names if reform efforts result in a restructuring in the
current system. Therefore, Zap.Com could lose its domain names or be unable to
prevent third parties from acquiring domain names that infringe or otherwise
decrease the value of our domain names, trademarks/service marks and other
proprietary rights.

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OPERATING INFRASTRUCTURE AND TECHNOLOGY PLATFORM

Zap.Com's business is supported by a systems platform that is provided and
maintained by third parties. For Zap.Com's ad servicing technology platform, we
have chosen DoubleClick's Ad Center and Ad Server solutions. This platform
enables Zap.Com to measure page views on the ZapNetwork and to rotate, change or
target banner advertising on the ZapBox.

To host and support the expansion and functionality of the ZapBox and other
Zap.Com Internet properties, Zap.Com has contracted with EMC, Inc. to provide
scalable hosting, Internet connectivity and database management services. Any
disruption of Internet access provided to Zap.Com could prevent Zap.Com from
operating or serving the ZapBox and could cause Zap.Com not to honor customer
obligations and would harm Zap.Com's reputation. This would have a material
adverse affect on Zap.Com's prospects, revenues and operating results.

Our success will depend on the continuing and uninterrupted performance of
our systems and those of third parties. Customers may become dissatisfied by any
system failures that interrupt our ability to deliver programming on the ZapBox,
including any failure to provide content, advertisements, e-commerce
opportunities, etc. accurately to the targeted audience and without significant
delay to the viewer. Sustained or repeated system failure would reduce the
attractiveness of our network to potential customers and Web site owners who are
potential network participants. Slower response time or system failures may also
result from straining the capacity of software deployed for our network due to
an increase in the volume of programming delivered to our network through its
servers. To the extent that we do not effectively address any capacity
constraints or system failures, our prospects revenues and operating results
would be materially and adversely affected.

The ZapNetwork will depend on Internet service providers, application
service providers and the operators of ZapNetwork Web sites for points of access
to the network. Internet service providers have experienced significant outages
in the past, and could experience outages, delays and other difficulties due to
system failures unrelated to systems employed by Zap.Com. Moreover, the Internet
infrastructure may not be able to support continued growth in its use. Any of
these problems could prevent Zap.Com from operating its network which would have
a material adverse affect on its prospects, revenues and operating results.

SALES, MARKETING AND CUSTOMER SERVICE

Zap.Com plans to conduct a marketing program that is aimed at attracting
and retaining customers who use its network for advertising, e-commerce and
other commercial activities. Zap.Com may use on-line or traditional media in
conducting these programs. Zap.Com will also explore co-marketing agreements,
where links to the Zap.Com home page will be featured on Web sites which are not
a part of the ZapNetwork.

Zap.Com plans to use a third party service provider to solicit potential
advertising customers. We have selected CKG Media.Com, Inc. d/b/a Phase2Media to
act as our exclusive sales agent in the solicitation of advertising sales for
the ZapNetwork. We are currently negotiating a contract with Phase2Media and
expect to enter into an agreement with that organization although we cannot
guarantee that this will occur. If we are unable to reach an agreement with
Phase2Media, we will need to locate a new sales agency and negotiate an
acceptable arrangement.

Zap.Com believes that its ability to establish and maintain long-term
relationships with its customers and to encourage repeat use of its network by
customers will depend, in part, on the strength of its support and service
operations and staff. Furthermore, Zap.Com believes that frequent communication
with and feedback from its customers and Web site owners who belong to its
network will allow it to continually improve the ZapNetwork and related
services. Zap.Com plans to offer an e-mail address to enable its constituents to
request information and to encourage feedback and suggestions.

STRATEGIC PARTNERSHIPS & RELATIONSHIPS

Zap.Com anticipates entering into a number of strategic and commercial
relationships and partnerships with third parties in order to implement its
business plan. As of the date of this document, we have contracted
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<PAGE> 11

with DoubleClick, iSyndicate, Direct Hit Technologies, Auragen Communications,
and EMC. While Zap.Com may develop internally the ability to render all of the
outsourced services provided by these entities, Zap.Com intends to continue
developing strategic relationships and partnerships so that it can have adequate
access to those services for the foreseeable future.

EMPLOYEES

As of the date of this document, Zap.Com has eight employees. Avram Glazer,
our President and CEO, and Leonard DiSalvo, our VP-Finance and Chief Financial
Officer, Marisa Bowe, Vice President -- Network Content, and Phil Jones,
Director of Finance, currently devote a portion of their business time and
attention to Zapata and a portion to Zap.Com. We expect to hire additional
employees to assist in the operation of our business. Although the competition
for skilled employees in the Internet industry is intense, Zap.Com does not now
foresee problems in hiring qualified employees to meet its needs.

Our senior management does not possess experience in acquiring or managing
an Internet network business. Therefore, Zap.Com has relied, and expects to
continue to rely, on consultants, service organizations and other professionals
with Internet experience to assist it in executing its business model. Zap.Com
will compensate those consultants, service organizations and other professionals
at competitive rates. Presently there is no way to estimate the term of their
service.

INTELLECTUAL PROPERTY

Zap.Com regards its service marks, trademarks, trade dress, trade secrets
and other intellectual property as critical to its success, and will rely on
trademark law, patent law, trade secret protection and confidentiality and/or
license agreements with its employees, customers, Web site owners who belong to
the ZapNetwork and others to protect its proprietary rights. A provisional
patent application has been filed with the United States Patent and Trademark
Office for a business process patent which is directed to a unique
Internet-based commerce method and system underlying Zap.Com's business model. A
provisional patent application is a type of application under which a patent
will not issue, but which provides a priority date for a regular patent
application that is filed within a one year period following the filing of the
provisional patent application. Zap.Com has also filed applications seeking
registration of its service marks in the United States, including Zap.Com,
ZapNetwork, ZapBox and My ZapBox. Zap.Com plans to file additional service mark
applications in the future as it adopts and uses additional marks. Zap.Com
cannot guarantee that any patent applications or trademark registrations will be
approved. Even if they are approved, these patents or service marks might be
successfully challenged or invalidated by others. Zap.Com also does not know if
its current or future applications will be issued with the scope of claims it
seeks. If a patent is issued on our pending application, it is possible that:

- if there are variations in the application of the business model claimed
in the patent to the products and services we offer in the future, the
patent, if issued, may not be effective in preventing one or more third
parties from utilizing a copycat business model to offer the same product
or service in one or more categories; and

- a competitor may develop and utilize a business model that appears
similar to the system described in our patent application, but which has
sufficient distinctions that it does not fall within the scope of any
patent which may arise from that application.

In the future we intend to file applications in appropriate foreign
jurisdictions for trademarks/service marks that we adopt. Effective trademark,
service mark, and trade secret protection may not be available in every country
in which Zap.Com's products and services are made available electronically.

We also generally enter into confidentiality agreements with our employees,
consultants and corporate partners to control access to and distribution of
proprietary information. We cannot guarantee that any of these persons will
observe their confidentiality obligations or will not attempt to disclose,
obtain or misappropriate Zap.Com solutions or technologies.

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<PAGE> 12

Zap.Com may license to third parties in the future some of its proprietary
rights, like trademarks/service marks. While Zap.Com will attempt to ensure that
the quality of its brands are maintained by those licensees, licensees may take
actions that materially adversely affect the value of Zap.Com's proprietary
rights or reputation. We cannot guarantee you that the steps taken by Zap.Com to
protect its proprietary rights will be adequate or that third parties will not
infringe or misappropriate Zap.Com's trademarks, trade dress and other
proprietary rights.

The contracts that Zap.Com will seek with Web site owners who join the
ZapNetwork will entitle Zap.Com to receive data derived from user activity on
the owner's Web sites. This information together with direct user information
derived from log files generated from the ZapBox will be collected and analyzed
for targeting advertising, e-commerce and direct marketing programs as well as
predicting performance of these programs. Although Zap.Com believes it has
rights to use this information in its database, trade secret, copyright or other
protections may not be available for this information.

On August 17, 1998, LFG, Inc. d/b/a Zap Futures commenced an action against
Zapata and another of its wholly-owned subsidiaries, Zap Corporation, in the
United States District Court for the Northern District of Illinois. LFG alleged
that Zapata and Zap were guilty of trademark infringement, trademark dilution
and unfair competition under the federal Lanham Act and various Illinois
statutes. The action arose out of the use by Zapata and Zap of the Zap trade
name and the Internet domain name "Zap.Com" for its Internet Web site and its
linking of that Web site to other Web sites owned by LFG competitors. LFG uses
the domain name "zapfutures.com" for its Web site. LFG sought injunctive relief,
unspecified compensatory damages, punitive damages and an award of attorneys'
fees. The parties reached settlement of this action on April 9, 1999. Under the
settlement, Zapata is obligated to provide two years of advertising and listing
to ZAP Futures on any Web pages within its proprietary Web sites which lists
financial information sources or futures traders. Zap.Com plans to make any
proprietary Web page meeting these requirements and which it establishes
available to the plaintiff to fulfill this obligation on behalf of Zapata and
Zap Corporation. In addition, LFG has agreed not to sue or otherwise oppose the
use by Zapata or its subsidiaries and successors and assigns of the use of the
Zap mark in connection with specified activities, including the use of the Zap
mark in connection with our network.

Zap.Com may be a party to legal proceedings and claims from time to time in
the ordinary course of its business, including claims of alleged infringement of
the trademarks and other intellectual property rights of third parties by
Zap.Com and its licensees. These claims, even if not meritorious, could result
in the expenditure of significant financial and managerial resources. Even if
Zap.Com prevails, this litigation could materially and adversely affect its
prospects, operating results and financial condition. Any claims of litigation
from third parties may also result in limitations on Zap.Com's ability to use
the intellectual property unless Zap.Com enters into arrangements with third
parties responsible for these claims or litigation, which may be unavailable on
commercially reasonable terms.

COMPETITION

The market for Internet advertising, e-commerce opportunities and other
commercial uses of the Internet as well as the market for Web site owners who
are candidates for joining our network are new and rapidly evolving and
competition is expected to increase significantly in these markets. Barriers to
entry are relatively insubstantial. Competition may also increase as a result of
industry consolidation. Zap.Com believes that the principal competitive factors
for companies seeking to create a network on the Internet are critical mass,
functionality, brand name, the quality of the Web sites that belong to the
network, loyalty, broad demographic user base, and strategic relationships.

Zap.Com believes that its ability to compete depends on many factors both
within and beyond its control, including the following:

- the timing and market acceptance of Zap.Com's business model;

- the ability to recruit high quality Web sites with required levels of
traffic to the ZapNetwork;

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<PAGE> 13

- the effectiveness of the ZapNetwork in terms of viewer traffic and reach
and the targeting and measuring performance of the ZapBox;

- the number and types of strategic and commercial relationships
established by Zap.Com, including e-commerce partnerships;

- the effectiveness of its sales and marketing efforts;

- the effectiveness of its customer service and support efforts;

- the ease of use, performance, price and reliability of solutions
developed by Zap.Com or its competitions.

Several companies offer competitive products or services through Web
advertising networks, including those that focus on the cost per thousand model,
such as DoubleClick and 24/7 Media. CMGI owns or controls several Internet
advertising and marketing companies, including AdForce, AdKnowledge, Flycast and
Engage Technologies. Through the combination of these companies, CMGI will
compete with our network. Other potential competitors include current and future
Web search engine companies and general information services, high traffic Web
sites and Internet service providers. These competitors include free
information, search and content sites or services, like America Online, CNET,
CNN/Time Warner, Excite@Home, Infoseek, Lycos, Microsoft, Yahoo! and Disney.
Also, several competitive companies have developed applications similar to the
ZapBox, such as Jotter, MyExcite and NetZero, which utilize Internet
technologies to deliver advertising and access to content to Internet users who
sign up for these services. These services provide non-Web site specific
advertising opportunities to Internet advertisers. Zap.Com also expects to
compete with traditional forms of media, like newspapers, magazines, radio and
television, for advertisers and advertising revenues.

Zap.Com believes that this competition could have a significant and adverse
impact on prices and terms of advertising and e-commerce relationships. The
nature and number of Zap.Com's competitors is expected to increase and change as
Zap.Com expands the scope of its services and product offerings. Many of
Zap.Com's potential competitors, including Web directories and search engines
and large traditional media companies, have operating histories in the Web
industry, established brand names and customer relationships and significantly
greater financial, technical and marketing resources than Zap.Com. Those
competitors are able to adopt more aggressive pricing policies and make more
attractive offers to potential employees, distribution partners, commerce
companies, advertisers, third-party content providers and Web site owners. They
may also develop products or services that are able to respond more quickly than
Zap.Com can to new or emerging technologies or changes in customer requirements.
We cannot guarantee you that potential ZapNetwork customers will not view our
competitors as being more desirable for the distribution of their information
over the Web. In addition, Zap.Com's potential customers and strategic partners
may have established collaborative relationships with one or more Zap.Com
competitors or potential competitors, and high-traffic Web sites. Accordingly,
we cannot guarantee you that Zap.Com will be able to grow its network, traffic
levels and customer base, or that competitors will not experience greater growth
in traffic than Zap.Com as a result of those relationships which could have the
effect of making their networks and Web sites more attractive to advertisers, or
that Zap.Com's future strategic partners will not sever or will elect not to
renew their agreements with Zap.Com. As a result, it is possible that new
competitors may emerge and rapidly acquire significant market share. We do not
know whether Zap.Com will be able to compete successfully and competitive
pressures may have a material adverse effect on Zap.Com's business, results of
operation or financial condition.

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES

There are an increasing number of laws and regulations pertaining to the
Internet. In addition, a number of legislative and regulatory proposals are
under consideration by federal, state, local and foreign governments and
agencies. Recently, the United States Congress enacted Internet legislation
regarding children's privacy, copyrights and taxation. Other laws or regulations
may be adopted with respect to online content regulation, user privacy, pricing,
taxation and quality of products and services. Any new legislation or
regulation, or the

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<PAGE> 14

application or interpretation of existing laws, may decrease the growth in the
use of the Internet, which could in turn decrease the demand for Zap.Com's
service, increase Zap.Com's cost of doing business or otherwise have a material
adverse effect on Zap.Com's prospects and revenues.

Liability For Information Retrieved From Zap.Com Web Sites Belonging to the
ZapNetwork and From Other Internet Sites. Content may be accessed on Web sites
that belong to the ZapNetwork or on other Internet sites that are linked to the
ZapNetwork or the Zap.Com home page. This content may be downloaded by users and
subsequently transmitted to others over the Internet. By providing those links,
Zap.Com is exposed to claims that it is liable for wrongful actions by the
owners of these sites. Claims of this nature have been brought, sometimes
successfully, against providers of Internet services. Zap.Com could also be
exposed to liability with respect to third-party content that may be posted by
users in chat rooms or bulletin boards which may be offered by Web sites which
belong to the ZapNetwork or which are otherwise linked to the ZapNetwork. Also,
there may be claims, alleging that Zap.Com, by directly or indirectly providing
links to other Web sites, is liable for copyright or trademark infringement or
the wrongful actions of third parties through their respective Web sites. The
Digital Millennium Copyright Act of 1998, however, has established limited
liability for online copyright infringement by online service providers for
listing or linking to third party Web sites that include copyright-infringing
materials, provided certain conditions are met.

Zap.Com's general liability insurance may not cover all potential claims to
which Zap.Com is exposed and may not be adequate to indemnify Zap.Com for all
liability that may be imposed. Any imposition of liability that is not covered
by insurance or is in excess of insurance coverage could result in significant
expense and cash demands which would adversely affect operating results and
financial condition. Even to the extent that these claims do not result in
liability to Zap.Com, Zap.Com could incur significant costs in investigating and
defending against these claims which would also adversely affect prospects,
operating results and financial condition.

Online Content Regulations. Several federal and state statutes prohibit
the transmission of indecent, obscene or offensive content over the Internet to
particular groups of persons. In addition, pending legislation seeks to ban
Internet gambling and federal and state officials have taken action against
businesses that operate Internet gambling activities. The enforcement of these
statutes and initiatives, and any future enforcement activities, statutes and
initiatives, may result in limitations on the type of content and advertisements
available on Web sites that belong to the ZapNetwork. To the extent that one or
more Web sites that belong to the ZapNetwork is adversely affected by such
legislation and regulations, this could have a material adverse effect on
Zap.Com's attractiveness to customers and could adversely affect revenues and
operating results. Further, legislation regulating online content could dampen
the growth in use of the Internet generally and decrease the acceptance of the
Internet as an advertising and electronic commerce medium, which could adversely
affect and impede the growth of our revenues.

Privacy Concerns. The Children's Online Privacy Protection Act of 1998
makes it unlawful for an operator of a Web site or online service directed to
children under 13 to collect, use or distribute personal information from a
child under 13 in a manner which violates regulations to be promulgated by the
Federal Trade Commission. The FTC is in the process of issuing final
regulations, which concern the scope of the Act's parental consent requirements.

The FTC is also considering adopting regulations regarding the collection
and use of personal identifying information obtained from individuals when
accessing Web sites. Further, the FTC has begun investigations into the privacy
practices of companies that collect information on the Internet. One
investigation resulted in a consent decree in which an Internet company agreed
to establish programs to implement the principles contemplated in the FTC
regulations that are under consideration. The FTC may conduct a similar
investigation of Web site owners who belong to the ZapNetwork or Zap.Com, or the
FTC's regulatory and enforcement efforts may adversely affect the ability of
Zap.Com and Web sites who belong to the ZapNetwork from collecting and providing
us with demographic and personal information from users. This could have an
adverse effect on Zap.Com's ability to provide highly targeted opportunities to
our customers. Any of these developments would have a material adverse effect on
Zap.Com's revenues and growth prospects.

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<PAGE> 15

It is also possible that cookies, or information keyed to a specific
server, file pathway or directory location that is stored on a user's hard
drive, possibly without the user's knowledge, which are used to track
demographic information and to target advertising, may become regulated by laws
limiting or prohibiting their use. The passage of laws limiting or abolishing
the use of cookies has been advocated by a number of authorities in the United
States and other countries. Limitations on or elimination of the use of cookies
by Web site owners who belong to the ZapNetwork or Zap.Com could limit the
effectiveness of Zap.Com's targeting of advertising and other programming
delivered to its network. This could have a material adverse effect on Zap.Com's
revenues and growth prospects.

The European Union recently enacted its own privacy regulations that may
result in limits on the collection and use of user information. The laws
governing the Internet, however, remain largely unsettled, even in areas where
there has been some legislative action. Zap.Com cannot be sure that violations
of local laws or new laws will not be alleged by one or more governments,
Zap.Com will not violate those laws or laws will not be modified or ones enacted
in the future. Any of these events could materially adversely effect our
revenues and growth prospects.

In addition to the risk of registration and regulatory constraints on our
business, there is also a risk of litigation. A number of class action lawsuits
have been brought against other Internet companies challenging their collection
and use of personal information about Internet users. The outcome of these
actions and the impact of these cases on Zap.Com, if any, is unclear and could
increase Zap.Com's cost of doing business or otherwise harm our business.

Internet Taxation. A number of legislative proposals have been made at the
federal, state and local level, and by various foreign governments, that would
impose additional taxes on the sale of goods and services over the Internet and
some states have taken measures to tax Internet-related activities. Although
Congress recently placed a three-year moratorium on state and local taxes on
Internet access or on discriminatory taxes on electronic commerce, existing
state or local laws were expressly excepted from this moratorium. Further, once
this moratorium is lifted, some type of federal and/or state taxes may be
imposed upon Internet commerce. This legislation, or other attempts at
regulating commerce over the Internet, may substantially impede the growth of
commerce on the Internet and, as a result, adversely affect Zap.Com's
opportunity to derive financial benefit from those activities.

Jurisdictions. It is possible that, although transmissions by Zap.Com over
the Internet originate primarily in New York, the governments of other states
and foreign countries might attempt to regulate Zap.Com's transmissions or
prosecute Zap.Com for violations of their laws. These laws may be modified, or
new laws enacted, in the future. Any of these developments could have a material
adverse effect on Zap.Com's prospects, operating results and financial
condition. In addition, as Zap.Com expects its service to be available over the
Internet in multiple states and foreign countries, these jurisdictions may claim
that Zap.Com is required to qualify to do business as a foreign corporation in
each of these states or foreign countries. As of the date of this document,
Zap.Com is not qualified to do business in any state other than New York, and
failure by Zap.Com to qualify as a foreign corporation in a jurisdiction where
it is required to do so could subject Zap.Com to taxes and penalties and could
result in the inability of Zap.Com to enforce contracts in these jurisdictions.
Any new legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to Zap.Com's business, or the
application of existing laws and regulations to the Internet and other online
services could have a material adverse effect on Zap.Com's prospects, operating
results and financial condition.

ITEM 2. PROPERTIES

Zap.Com's headquarters are located in Rochester, New York, in space
subleased to it by Zapata. Under the sublease arrangement, annual rental
payments are allocated on a cost basis. Zap.Com expects to expand its facilities
as its operations grow. Zap.Com believes that additional space will be available
on commercially acceptable terms.

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ITEM 3. LEGAL PROCEEDINGS

Since the date of its organization through the date of this document,
Zap.Com has not been involved in any legal proceedings. Zapata and its
wholly-owned subsidiaries, Zap Corporation, however have been sued for use of
the Zap trade name and the Zap.Com domain in connection with Web sites providing
financial information. This suit has been settled. See "Item
1 -- Business -- Intellectual Property." We cannot guarantee that Zap.Com will
not in the future be involved in litigation incidental to the conduct of its
business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of Zap.Com's stockholders during the
fourth quarter of Fiscal 1999.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

PRICE RANGE OF COMMON STOCK

Our common stock began trading on the OTC electronic bulletin board
maintained by the NASD under the symbol "ZPCM" November 30, 1999. We believe
that approximately five dealers are engaged in making a market in our common
stock. The OTC electronic bulletin board is a regulated quotation service that
displays real-time quotes, last-sale prices and volume information in
over-the-counter equity securities. The OTC electronic bulletin board market
quotations reflect inter-dealer prices, without retail mark up, mark down or
commission and may not necessarily represent actual transactions. Prior to
November 30, 1999, no active trading market existed for our common stock. Since
trading commenced in our common stock, the daily volume in our share has been
thin ranging from 100 shares to 19,800 shares as of March 16, 2000. We cannot
assure you that investors will develop an interest in our common stock so that
an active trading market develops or, if this occurs, how active that trading
market will be or market will be or whether it will be sustained. The market for
our common stock is highly volatile. The following table presents quarterly high
and low closing prices for our common stock reported by the OTC electronic
bulletin board.

<TABLE>
<CAPTION>
HIGH PRICE LOW PRICE
---------- ---------
<S> <C> <C>
1999
Fourth Quarter (November 30, 1999 through December 31,
1999).................................................. $10.750 $2.25
2000
First Quarter (January 1, 2000 through March 16, 2000).... $10.875 $5.50
</TABLE>

On March 16, 2000, the last sale price reported on the NASD OTC electronic
bulletin board for our common stock was $7.88. As of March 16, 2000, there were
1,707 holders of record of our common stock.

DIVIDENDS

We have never declared or paid cash dividends on our common stock. We
currently intend to retain our earnings, if any, for use in our business and do
not anticipate paying any cash dividends in the foreseeable future.

The payment of any future dividends will be at the discretion of our Board
of Directors and will depend upon a number of factors including future earnings,
the success of our business activities, regulatory capital requirements, the
general financial conditions and future prospects of our business, general
business conditions and such other factors as our Board of Directors may deem
relevant.

RECENT SALES OF UNREGISTERED SECURITIES

In April 1998, Zap.Com issued 1,000 shares of common stock to Zapata in a
transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2). On November 12, 1999, Zap.Com effected a
49,450-for-one share stock split and in connection with the split, Zapata
contributed $9,000,000 to the Company's capital. This contribution consisted of
$8,000,000 in cash and $1,000,000 in inter-company debt forgiveness. These
securities were issued pursuant to an exemption from the registration
requirements provided by Section 3(c)(9) of the Securities Act.

In November 1999, Zap.Com issued to Malcolm Glazer and Avram Glazer 550,000
shares of common stock in connection with their investment of $1,100,000 in
Zap.Com in a transaction exempt from the registration requirements pursuant to
Section 4(2) of the Securities Act.

In April and June 1999, Zap.Com issued stock options to current and future
officers and employees of Zap.Com to purchase up to 755,000 shares of common
stock at an exercise price of $5.00 per share. These options were subject to the
successful completion of a rights offering which Zap.Com planned to conduct to
Zapata's stockholders. This issuance was exempt from registration under the
Securities Act in reliance on Rule 701 promulgated under the Securities Act as
offers and sales of securities pursuant to compensatory

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<PAGE> 18

benefit plans and contracts relating to compensation in compliance with Rule
701. Zap.Com abandoned the rights offering in September 1999, thereby
terminating these options.

On October 20, 1999, Zap.Com granted stock options to officers and
employees of Zap.Com to purchase up to 578,000 shares of common stock at an
exercise price of $2.00 per share. This issuance was exempt from registration
under the Securities Act in reliance on Rule 701 promulgated under the
Securities Act as offers and sales of securities pursuant to compensatory
benefit plans and contracts relating to compensation in compliance with Rule
701.

On October 20, 1999, Zap.Com issued warrants to American Internetwork
Sports Company, LLC to purchase up to 2,000,000 shares of common stock at an
exercise price of $2.00 per share. These securities were issued pursuant to an
exemption from registration provided by Section 4(2) of the Securities Act.

On January 27, 2000, Zap.Com granted stock options to an executive of
Zap.Com to purchase up to 25,000 shares of common stock at an exercise price of
$9.00 per share. On January 14, 2000, Zap.Com granted stock options to an
officer of Zap.Com to purchase up to 5,000 shares of common stock at an exercise
price of $5.50 per share. These issuances were exempt from registration under
the Securities Act in reliance on Rule 701 promulgated under the Securities Act
as offers and sales of securities pursuant to compensatory benefit plans and
contracts relating to compensation in compliance with Rule 701. On March 20,
2000, Zap.Com granted stock options to a key employee of Zap.Com to purchase up
to 3,000 shares of common stock at an exercise price of $7.00 per share.

No underwriters, brokers or other agents were or will be involved in any of
the above described transactions.

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ITEM 6. SELECTED FINANCIAL DATA

The following tables set forth selected financial data derived from our
audited financial statements. The audited balance sheets as of December 31, 1998
and December 31, 1999 and the related statements of operations, stockholders'
equity (deficit) and cash flows for the periods then ended and the accompanying
notes are included elsewhere in this report. The following information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes
thereto included elsewhere in this document.

Interest income........................... -- 54,159 54,159
----------- ---------- -----------
Loss before income taxes.................. (793) (3,534,940) (3,535,733)
Benefit from income taxes................. -- -- --
----------- ---------- -----------
Net loss.................................. $ (793) $(3,534,940) $(3,535,733)
=========== ========== ===========
Per share data (basic and diluted)
Net loss per share.............. $ (.00) $ (.07) $ (.07)
Average common shares and common share
equivalents outstanding................. 49,450,000 49,525,342 49,493,036
</TABLE>

- ---------------
(1) Includes approximately $325,000 of costs incurred as of December 31, 1999 in
connection with a rights offering abandoned by Zap.Com in September 1999.

<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ -- $7,579,363
Total assets.............................................. -- 8,488,748
Total liabilities......................................... 783 753,205
Total stockholders' (deficit) equity...................... (783) 7,735,543
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

FORWARD-LOOKING STATEMENTS

The following discussion of the financial conditions and results of
operations of Zap.Com should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere herein. This
discussion contains forward-looking statements which involve risks and
uncertainties. The Company's actual

17
<PAGE> 20

results may differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to, those
set forth elsewhere herein.

GENERAL

Zap.Com is a development stage company that seeks to build its network, the
ZapNetwork, into a global network of independently owned Web sites that deploy,
on a perpetual basis, our Internet application, the ZapBox or other Internet
properties that we may acquire or develop. Currently, the ZapNetwork currently
consists of Web sites owned and operated by Zapata, www.charged.com,
www.word.com and www.pixeltime.com, and Zap.Com's home page, www.zap.com. Zapata
has agreed to continue this arrangement at its discretion with no legal or other
financial obligations. We intend to distribute advertising and e-commerce
opportunities over the ZapNetwork.

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 477,742 shares of our common stock to its
stockholders. On November 30, 1999, our common stock began trading on the NASD
OTC electronic bulletin board under the symbol "ZPCM."

Since its inception, Zap.Com's operations have consisted primarily of
organizational and capital raising activities, research and analysis with
respect to Internet industry opportunities, the development of strategic and
commercial relationships and the development and launch of our home page at
www.zap.com and ZapBox 1.0 and 2.0. This 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 the ZapBox, the establishment
and continuation of strategic and commercial relationships, increasing our
employee base, growing 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.

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 join
the ZapNetwork and to successfully market the ZapBox to potential 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 sufficient revenues
to become profitable.

On October 20, 1999, Zap.Com granted to 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. On January
27, 2000, Zap.Com granted to a Zap.Com executive options to purchase an
additional 25,000 shares of Zap.Com common stock at a $9.00 per share exercise
price and on January 14, 2000, Zap.Com granted to an officer of Zap.Com options
to purchase up to 5,000 shares of common stock at an exercise price of $5.50 per
share. These options and the warrant will generally vest ratably on an annual
basis on the first three anniversaries of their issuance and have five-year
terms.

Zap.Com accounts for the options pursuant to the provisions of APB Opinion
No. 25 "Accounting for Stock Issued to Employees" and has provided for in the
notes to the financial statements with the pro-forma disclosure provisions
prescribed by Statement of Financial Accounting Standards, ("SFAS"), No. 123
"Accounting for Stock Based Compensation." In management's opinion, the exercise
price of the options was equal to or below the fair value of Zap.Com's common
stock on the date of grant and, accordingly, no compensation charge was recorded
by the Company. In the case of the warrants granted to American Internetwork
Sports, Zap.Com accounts for the warrants in accordance with Emerging Issue Task
Force
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<PAGE> 21

("EITF") Issue No. 96-18. "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." Accordingly, Zap.Com records expense based on the then current fair
value of the warrants at the end of each reporting period with adjustment of
prior expense to actual expense at each vesting date. Zap.Com anticipates
incurring significant additional charges against earnings in connection with
these warrants in future periods if the trading price of Zap.Com's stock
increases because these increases will increase the then current fair value of
these warrants.

LIQUIDITY AND CAPITAL RESOURCES

In November 1999, Zapata contributed to Zap.Com $8,000,000 in cash and
forgave $1,000,000 in inter-company debt. 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. The proceeds from these investments and the forgiven loan
have been and are being used by Zap.Com to finance the development of its
Internet application, the ZapBox, and operational expenses associated with the
implementation of its business plan. As of March 16, 2000, Zap.Com had
approximately $6,327,000 in cash and cash equivalents.

As of the date of this report Zap.Com does not have a source of revenues
and it will not have revenues until customer contracts have been secured.
Zap.Com does not expect to secure customer contracts 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.

Due to its lack of revenues and the costs it has incurred in implementing
its business plan to date, Zap.Com has experienced negative cash flow. Zap.Com
expects the negative cash flow to continue for at least the next 12 months or
until customer contracts have been secured and sales are made. Zap.Com currently
expects that the proceeds from the investments made by Zapata and the Glazers
will be sufficient to support its growth and operations at least through
December 31, 2000.

If sufficient sales do not commence in the next 12 months, Zap.Com will
need to significantly reduce operational expenses. As of the date of this
report, Zap.Com has contractual commitments for approximately $1 million over
the next 12 months. To the extent that revenue does not grow at anticipated
rates, or that increases in operating expenses are not followed by commensurate
increases in revenue, or if we are unable to adjust operating expense levels
accordingly, we will continue to experience negative cash flow and will need to
raise additional capital to fully implement our business plan. Future additional
capital could be required during this period if unexpected costs arise or if we
pursue ventures that enhance or accelerate our business development. If
additional capital requirements arise, we may need to raise additional funds.

As part of its business strategy, Zap.Com plans to make payments of common
stock to Web site owners who join the ZapNetwork. On March 14, 2000 we commenced
solicitation of Web site owners to join the ZapNetwork. This followed the
declaration by the SEC on March 3, 2000, of the effectiveness of our
registration statement on Form S-1, covering 20,000,000 share of our common
stock, $.001 par value per share. This registration statement also covers up to
an additional 30,000,000 shares of our common stock, $.001 par value per share,
of Zap.Com to be issued from time to time as payment for all or some portion of
the purchase price for one or more acquisitions of companies, businesses or
assets complementary to Zap.Com's existing business ( including future
acquisitions of rights granted with respect to one or more Web sites) or which
may be offered in connection with promotion or similar events or for sale or
other distribution by persons who require such shares in the acquisitions or
promotional events or by the donees of such person or by other persons acquiring
such share.

As of the date of this document, we intend to sell shares in the offering
only to web site owners residing in the States of Colorado, Delaware, Florida,
Georgia, Idaho, Illinois, Louisiana, New York, Oregon, Rhode Island, South
Carolina, Utah, Washington and Wyoming. We have filed appropriate registrations
for this offering in all of the other states (except Texas) but these
registrations are not yet effective and there can be no assurance that they will
become effective. We intend to commence solicitation of Web site owners in
additional states in which the registrations become effective.

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<PAGE> 22

Web site owners who join the Zap Network will enter into an agreement with
Zap.Com which provides for the payment to the web site owner of a dollar amount
in exchange for certain rights granted to Zap.Com with respect to the owner's
web site. This dollar amount will be based on the nature of the web site owner's
commitment (i.e., exclusive vs. non-exclusive) and the web site's number of
average monthly unique users. The dollar amount will be paid in whole or in part
by issuance of Zap.Com common stock over a seven year period based on a trailing
20 day average closing price as of the date of issuance. These rights will
entitle Zap.Com to have at all times the ZapBox, or any other Internet
properties we acquire or develop, appear and be immediately and fully apparent
and prominently displayed without scrolling on each and every page of its Web
site within a defined area. The agreement provides that we will have sole
control and discretion over all aspects of the Internet property deployed on the
Web site, but that the Web site owner will retain control over all other aspects
of the Web site.

There will be no immediate effect to our balance sheet by the acceptance of
subscriptions under agreements entered into during the offering due to the
variable nature of the number of shares to be issued under the subscriptions. We
will account for the commitment to issue these shares and the associated expense
at their minimum value as prescribed by the principles of EITF 96-18.
Accordingly, the minimum fair value of these shares will be recorded under total
stockholders' (deficit) equity as "Obligation to issue common stock for
ZapNetwork agreements" on a pro rata basis during the Web site rights purchase
price payment period. If the per share floor price is $5.00 throughout the
offering, then the maximum value of the shares to be issued in consideration for
the Web site rights granted to Zap.Com under the ZapNetwork agreements will be
no more than $100 million. This figure will be reduced in two circumstances. It
will be lower if the per share value of the shares issued to Web site owners
under their respective ZapNetwork agreements based on the 20-day average closing
price for our shares ending on each of the six payments dates under those
agreements is below the applicable per share floor price. The maximum value of
the subscribed shares will also be reduced if a Web site owners purchase price
is decreased due to a decline in the site's unique users from the number of
unique users that was used to determine its original purchase price.

To date, trading in our common stock has been thin. We cannot assure you
that a more active trading market for our common stock will develop or if it
does develop, that it will be sustained. We believe that the willingness of Web
site owners to accept our common stock will depend upon the development of an
active trading market in our stock, prevailing market conditions, the market
price of our common stock and other factors over which we have no control, as
well as our financial condition and results of operation. If Web site owners are
unwilling to accept Zap.Com common stock, Zap.Com may need to raise additional
funds to fund the growth of the ZapNetwork.

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. 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.

RESULTS OF OPERATIONS

As of December 31, 1999, Zap.Com had incurred expenses and a cumulative
operating loss of approximately $3,536,000 from date of inception, consisting
primarily of payroll, legal, accounting and consulting fees, and marketing and
development costs. Of this amount, approximately $325,000 is attributable to the
rights offering that Zap.Com abandoned during September 1999, and approximately
$1,171,000 of the marketing expenses was attributable to a non-cash charge
associated with the warrants issued to American
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<PAGE> 23

Internetwork Sports. Since its inception, Zapata has provided Zap.Com with all
of the administrative personnel and services which it has required on an
estimated cost basis. The total cost of these services through December 31, 1999
was approximately $369,000.

Zap.Com expects that during 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 and future periods, Zap.Com
also anticipates that it will incur significant charges against earnings as a
result of consideration to be paid Web site owners who join the ZapNetwork and
from stock which may be issued in connection with promotions or other events. On
March 14, 2000, Zap.Com commenced solicitation of Web site owners to enroll Web
sites in the ZapNetwork. As of the date of this report, 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.

Until Zap.Com begins to recognize revenue from operations, we will continue
to be considered in the development stage. Zap.Com anticipates that for the
foreseeable future, it will incur substantial operating losses. During the early
stages of the execution of our business plan, we will incur significant
expenditures to acquire and integrate the necessary technology, systems and
supporting infrastructure, increase the number of Web sites joining its network,
develop our brand name and expand our business. The extent of 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 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 comprise 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.

YEAR 2000

Many companies' computer systems, software products and control devices
needed to be upgraded or replaced in order to operate properly in the Year 2000
and because of the inability to distinguish 21st century dates from the 20th
century dates. Zap.Com was aware of the issues associated with the programming
code in existing computer systems as the year 2000 approached.

As of and after January 1, 2000, Zap.Com has not experienced any Year 2000
related disruptions to its computer systems or business operations. If any of
these errors or defects does exist, we may incur material expenses to resolve
them. Although to date we have not experienced any date related problems with
the hardware and software used in our systems, we cannot assure you that such
problems may not surface. If these systems do experience date related problems,
we could experience a delay in generating revenue, diversion of our resources or
expenses that could unexpectedly adversely affect our financial condition and
prospects.

SIGNIFICANT FACTORS THAT COULD AFFECT FUTURE PERFORMANCE AND FORWARD-LOOKING
STATEMENTS

We believe that our results of operations, cash flows and financial
condition could be negatively impacted by certain risks and uncertainties,
including, without limitation, the risks and uncertainties identified in our

21
<PAGE> 24

other public reports and filings made with the SEC, press releases and public
statements made by our authorized officers from time to time and those risks and
uncertainties set forth below:

Our Limited Operating History Makes it Difficult to Evaluate Our Business and
Prospects

We were founded in April 1998. To date, our activities have consisted
primarily of organizational and capital raising activities, research and
analysis with respect to Internet industry opportunities, development of
strategic and commercial relationships and the creation and launch of our
homepage, ZapBox 1.0, Zapbox 2.0 and the ZapNetwork.

As of the date of this report, we have a limited operating history which
makes it difficult to evaluate our business and its prospects.

We Face Many Risks in Establishing a New Business Enterprise

As a development stage company, we face all of the risks associated with
establishing a new business enterprise in the Internet industry. In addition,
our revenue model is evolving and is expected to rely substantially upon the use
of our network by advertisers, direct marketers and merchants either by
themselves or in a strategic relationship with us. Our prospects must be
considered in light of the risks, expenses and problems frequently encountered
by companies in their early stages of development, particularly companies in new
and rapidly evolving markets like the Internet, using unproven business models.
To address some of these risks we must successfully:

- finalize development of future releases of our ZapBox which will
incorporate additional functionality;

- build and maintain the ZapNetwork by having Web site owners join our
network;

- continue to develop, formalize and maintain strategic and commercial
relationships with third parties for services in areas critical to the
successful execution of our business model, including organizations
that have sales, software, hardware, Web site traffic measurement and
technical and Internet industry expertise;

- continue to attract, retain and motivate qualified personnel;

- market the ZapNetwork to potential customers, including advertisers,
direct marketers, merchants and others;

- manage the expansion of our operations; and

- anticipate and adapt to changes in our market and competitive
developments.

We cannot be certain that our business strategy will be successful or that
we will successfully address any or all of these risks or any of the other
risks described in this document. Our failure to address these risks will
present significant obstacles to our ability to achieve and sustain
profitability.

We Have No Present Source of Revenues; to Generate Revenues, We Will Need to
Grow on Network Which We Cannot Guarantee Will Occur

As of the date of this report, we do not have any source of revenue. Our
ability to generate revenues will depend on our ability to have Web site owners
join the ZapNetwork and to select sites that are attractive to potential
customers. We do not expect to generate any revenues from the ZapNetwork until
it has grown to a size which is attractive to potential advertising customers
and e-commerce partners. As of the date of the document we have no present
plans, proposals, arrangements or understandings with any Web site owners to
join our network. Further, we have not confirmed the interests of Web site
owners in the ZapNetwork and, therefore, we cannot assure you that Web site
owners will want to join our network. Please see Item 1. "Business -- Web Site
Owner Recruiting." If we are unable to attract a sufficient number of Web site
owners to our network to commence sales, it would adversely effect our ability
to generate revenues and would impede our growth. Further, we cannot assure you
that our network will ever achieve the size necessary to attract
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<PAGE> 25

customers or e-commerce partners, or, if we do, that we will ever achieve
sufficient revenues to become profitable. Even if we do attract a sufficient
number of Web site owners, we cannot assure you that we will be able to
integrate these Web sites into our network without substantial unanticipated
costs, delays or other problems. We also may be unable to anticipate all of the
changing demands that successive admissions of Web sites to our network will
impose on our management personnel, operational and management information
systems and financial systems or those of Zapata with whom we have a services
agreement. Please see Item 1. "Business -- Web Site Owner Recruiting."

We Anticipate Significant Losses for the Foreseeable Future and Negative Cash
Flow in the Early Stages of the Implementation of our Business Plan

As of December 31, 1999, we had a deficit accumulated during the
development stage of $3,535,733. During the early stages of the execution of our
business plan we will incur significant expenditures to obtain and integrate the
necessary technology, systems and supporting infrastructure, increase the number
of Web sites that belong to our network, develop our brands, hire additional
employees and expand our business. We also anticipate significant charges
arising from the consideration we plan to pay Web site owners who join the
ZapNetwork and in connection with promotions or similar events. We will also
incur significant charges as a result of our consulting arrangement with
American Internetwork Sports. In order to achieve and maintain profitability and
positive cash flow, we will need to establish and grow our network and attract
and retain customers which we cannot assure you will occur. We anticipate that,
for the foreseeable future we will incur substantial operating losses and in the
early stages of the implementation of our business plan we will have a negative
operating cash flow. To the extent that revenue does not grow at anticipated
rates, or that increases in operating expenses are not followed by commensurate
increases in revenue, or 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 we will ever
achieve profitability or positive cash flow. If we do achieve profitability and
positive cash flow, we cannot be certain that we would be able to sustain or
increase profitability or cash flow on a quarterly or annual basis in the
future.

Our Business Model and Its Potential For Profit is Unproven

Our business is based on an unproven model. As a result, the profit
potential for our business model is also unproven. Even if our network is
successfully developed, our success will largely depend on our ability to
generate and substantially increase advertising and e-commerce related revenues.
We cannot assure you that the market for our services will develop or become
sustainable. Either of these situations could have a material adverse effect on
our ability to generate revenues and would impede our growth. In addition, as
our business model evolves, we may introduce new pricing models and new products
and services which may adversely affect our margins, significantly increase our
operating expenses and adversely affect our operating cash flow.

We Will Only be Able to Execute Our Business Plan if Internet Usage Grows

Our future success is highly dependent on an increase in the use of the
Internet as a medium for commercial activities, including advertising, direct
marketing, for-fee content delivery and other commerce. The Internet market is
at a very early stage of development, is rapidly evolving and is characterized
by an increasing number of entrants that are introducing or developing competing
products and services. As is typical in the case of a new and rapidly evolving
industry, demand and market acceptance for recently introduced products and
services is uncertain and have a high level of risk. Because the Internet market
is new and evolving, we cannot predict with any assurance the market's size,
growth rate or durability.

Most of our potential network customers will have only limited experience
with the Web as a commercial medium and may not find it to be an effective way
to carry-on business. Consequently, they may allocate only limited portions of
their budget to Internet based advertising and transactions. Our ability to
generate revenues will depend on these potential customers accepting and
utilizing the Internet's new and novel emerging method of conducting business
and exchanging information.

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<PAGE> 26

We Are in the Process of Developing Future Releases of the ZapBox, and It May Be
Difficult to Finalize Development of These Releases

We have created and launched the ZapBox, which is a Web application that
offers search, news, sports, weather, feedback e-mail, animated graphical links
to ZapNetwork sites and the Zap.Com homepage, content personalization and
ad-serving capabilities. We are currently in the process of developing future
releases of the ZapBox. The timing and success of these versions of the ZapBox
is unpredictable due to the uncertainty of several technical parameters,
including bandwidth requirements and browser compatibility. We cannot guarantee
that the development of these future versions of the ZapBox will be successfully
finalized and introduced. In addition, the current or any future version of the
ZapBox may contain undetected errors when first made available, which could
result in additional expense to us and also result in a loss or delay of market
acceptance of the ZapBox and disruption to the operation of our network. Any of
these events would have a material adverse affect on our ability to generate and
grow revenues and could result in incurring additional expenses that may not be
recovered.

If Banner Advertising Becomes an Ineffective Business Method, Our Business,
Revenues, Operating Results and Prospects Will Suffer

Banner advertising, from which we expect to derive substantially all of our
revenues, may not be an effective business model in the future. There are
currently no widely accepted standards to measure the effectiveness of Internet
banners and we cannot be sure that these standards will develop to sufficiently
support the use of banners as a significant medium for delivery of advertising,
e-commerce and other information. Potential ZapNetwork customers may not accept
our (or third party) measurements of impressions on the ZapNetwork and these
measurements may contain errors. This could adversely affect our business and
our ability to generate revenues. Even if new methods of measuring effectiveness
are developed, we may not be able to take advantage of them. Moreover,
inexpensive "filter" software programs that limit or prevent banners from being
delivered to a user's computer are currently available. The widespread adoption
of this software or the actual or perceived ineffectiveness of a network of
banners in general, could threaten the commercial viability of our business and
limit our long-term growth.

We May Fail to Meet Market Expectations Because of Fluctuations in Our Quarterly
Operating Results, Which Could Cause Our Stock Price to Decline

Our limited operating history makes it difficult for us to assess the
impact of seasonal factors of our business. We expect, however, that our
revenues and operating results will fluctuate significantly quarter-to-quarter
in the future due to a number of factors, some of which are beyond our control.
These factors include:

- the addition of new, or loss of, network customers or the addition to, or
loss of Web sites from, the ZapNetwork;

- the price paid for the Web site rights to Web site owners joining the
ZapNetwork and related costs;

- user traffic levels and the number of impressions on Web sites that
belong to the ZapNetwork;

- demand for advertising on the ZapNetwork by future customers and the
success of any e-commerce opportunities that we pursue for the
ZapNetwork;

- seasonal fluctuations in revenue;

- changes in the growth rate of Internet usage;

- changes in our pricing policies or those of our competitors for different
uses of the ZapNetwork;

- the commitment of budgets for businesses to Internet advertising and use;

- the mix of revenues from different uses of the ZapNetwork by our future
customers and e-commerce partners;

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<PAGE> 27

- the timing and amount of costs relating to building our network and
expanding our operations, including infrastructure technology and
business systems, brand development and personal hiring and training;

- the introduction of new solutions by us or our competitors; and

- general economic and market conditions.

Due to all of these factors you should not rely on quarter-to-quarter
comparisons of our revenues and operating results as an indication of future
performance. In addition, due to our limited operating history and our unproven
business model, we cannot predict future revenues or operating results
accurately. It is likely that in some future periods our revenues and operating
results may be below the expectations of public market analysts and investors
and this would almost certainly affect adversely the trading price of our common
stock. Please see "Management's Discussion of Analysis of Financial Condition
and Results of Operation."

A Decline in Traffic on, or Loss of Web Sites Belonging to Our Network Could
Result in Reduced Revenue

Our near-term and long-term prospects will be significantly dependent upon
the performance of the Web sites who join the ZapNetwork, including the quality
of their content or other offerings and the level of traffic on their sites.
Management's assessment of a particular Web site candidate for our network may
not prove to be correct. Additionally, we will have no control over these
factors and our ability to generate revenues and grow would be significantly
impeded by declines in the quality or traffic levels of Web sites that belong to
our network, or if one or more material Web sites discontinues its business or
becomes bankrupt or insolvent.

Each Web site owner who joins the ZapNetwork will enter into a contract
with us providing for a perpetual right to deploy the ZapBox or any other
Internet properties we develop or acquire in the future, throughout its Web
sites. In the event that a Web site owner breaches its ZapNetwork agreement at
any time and denies us access to its Web sites, one of our remedies will be to
pursue a court order for specific performance. A court, however, may find that
money damages are adequate and refuse to issue this type of order despite the
irreparable harm that we believe will occur. If either a Web site owner whose
site is material to the network or a material number of Web sites which belong
to the network engage in that type of conduct and the presiding courts refuse to
specifically enforce the participants' contracts with us, we might be unable to
honor obligations to our customers and our ability to generate revenues and grow
would be significantly impeded.

Our Database May Contain Inaccuracies That Could Reduce the Value of Our
Information

The effectiveness of targeting on our network will be largely dependent
upon the accuracy of user profile information contained in the databases we
assemble. We will collect data on registered users of the ZapBox. We cannot be
sure that the information which will be developed from our database will be
accurate or that network customers will be willing to rely on targeting based on
our database which may contain potential inaccuracies. This could adversely
affect our ability to secure or continue customer relationships which could
adversely affect our ability to generate and grow revenues. Please see
"Business -- Intellectual Property".

We Rely Almost Exclusively on Third Party Technology and Service Providers That
We Do Not Control

We rely almost exclusively on third parties to provide infrastructure to
support the ZapBox and the Zap Network. For example, we rely on EMC, Inc. to
provide us with connectivity to the Internet and to provide us with the
necessary software to address certain operational aspects of our network. We
have entered into an agreement with EMC to provide us with those services. We
have also entered into a sublicense agreement with EMC for the Doubleclick Ad
Server software platform which will become effective in May 2000. The Ad Server
software will address the task of distributing the banner in the ZapBox and
managing the banner inventory. We have a contract with Doubleclick for its Ad
Center service for delivery of advertising on the ZapBox through April 2000. We
are relying on Auragen Communications, Inc. to develop future releases of the
ZapBox and to manage Zap.Com's relationship with EMC, DoubleClick and other
third parties providing technology solutions to Zap.Com. To the extent that
material difficulties are encountered in bringing

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DoubleClick's systems on-line, we will need to acquire an alternative solution.
Our loss of, or inability to maintain or obtain upgrades to the technology
licenses or hardware solutions used in our operating infrastructure by us or
third parties could result in delays, which would adversely effect our ability
to operate our network. This would cause our business and operating results to
suffer until equivalent technology and hardware solutions could be identified
and implemented. If we are unable to maintain satisfactory relationships with
third parties who provide services or products necessary to operate our network
on acceptable commercial terms, or the quality of products and services provided
by these third parties falls below a satisfactory standard, we could experience
a disruption in the delivery of programming to our network, which could have a
negative impact on our network and, hence, our business and operating results. A
failure to complete the development of our infrastructure or to do so without
substantial delay or cost will have a material adverse impact on our ability to
generate revenue.

We also expect to rely on third-party service providers for a number of
operational aspects critical to our business plan. These providers include
experienced media representation agencies, Web site traffic measurement firms,
content providers, customer service providers and others. We currently have some
of these arrangements in place and we cannot assure you that we will be able to
secure all other arrangements necessary to operate our business. If we fail to
secure additional necessary arrangements, or to do so in a timely manner and on
commercially reasonable terms, it will have a material adverse effect on our
ability to commence sales efforts and to generate revenues. The termination of
any of these relationships in the future after they have been established could
have the same effect and could impair our relationships with customers and have
a negative impact on our revenues. Further, if any of the third-parties change
their terms or terminate their relationships, we may need to incur additional
costs to replace those service providers and to bring the new service providers
up-to-date with our then current operations. Please see Item 1. "Business --
Operating Infrastructure and Technology Platform," and "-- Sales, Marketing and
Customer Service."

The Failure of Computer Systems Used by Us or Third Parties Could Harm Our
Operations and Revenue

The continuing and uninterrupted performance of computer systems used by
us, third parties performing services for us and Web site that belong to our
network is critical to our success. Customers may become dissatisfied by any
system failures that interrupt our ability to deliver programming over our
network accurately to the targeted audience and without significant delay to the
viewer. Sustained or repeated system failure would reduce the attractiveness of
our solutions to our customers. Slower response time or significant disruptions
may also result from straining the capacity of the software used in our network
or the hardware connected to our network due to an increase in the volume of
programming delivered to our network. If these circumstances arise, our efforts
to rectify the situation may result in significant additional expenses. To the
extent that any capacity constraints or system failures are not adequately
addressed, it would adversely effect the delivery of programming to our network,
the number of ZapBox views received by our customers and our revenues and we may
need to incur additional significant expenses to rectify the situation.

Similar to all computer and communication systems, systems used in our
business could be damaged by earthquake, fire, floods, power loss,
telecommunications failures, break-ins and like events. In addition,
interruptions in our network programming could result from the failure of our
telecommunications providers to provide the necessary data communications
capacity in the time frame we require. Despite precautions we have taken,
unanticipated problems affecting systems supporting our network may at some
point in the future cause interruptions in the delivery of programming to our
network. Despite security measures, our servers are also vulnerable to computer
viruses, physical or electronic break-ins and other disruptive problems. Any of
these events could lead to interruptions, delays, loss of data or cessation in
service to our network. We do not now and will not for the foreseeable future
maintain business interruption insurance. Any system failure that causes
interruption or an increase in download time of our ZapBox or other Internet
properties to Web sites could delay programming to the ZapNetwork and, if
sustained or repeated, could reduce the attractiveness of the network to
customers.

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We Expect to Incur Significant Expenses for Compensation Paid to Web Site Owners
for Joining Our Network

We expect to incur significant charges against earnings for the
consideration we plan to pay for Web site rights granted to us by Web site
owners who join and belong to the ZapNetwork. To the extent we pay this
consideration in shares of our common stock, we will account for it at fair
value on the date of issuance. We expect to ratably expense these charges over
the payment period and that the reduction in net income resulting from these
charges will have a material and adverse impact on earnings.

If We Are Unable to Raise Necessary Capital in the Future, We May Be Unable to
Meet Our Future Capital Needs

Our business model is dependent on a significant number of Web Site owners
joining our network as a result of being paid for the right to deploy the
ZapBox, or other Internet properties we develop or acquire in the future,
throughout their Web sites. We expect that the main form of consideration to be
paid these Web site owners will be our common stock. Since our common stock
started trading on November 30, 1999, our common stock has been thinly traded.
If a more active trading market does not develop in, or develops and is not
maintained in our common stock, Web site owners considering joining the
ZapNetwork may be unwilling to accept our common stock as consideration for
joining and belonging to the network. Under these circumstances, we may be
required to use cash to initiate and possibly maintain the growth of our
network. In addition, our cash flow may not turn positive when we have projected
which may require us to use additional capital to satisfy operating expenses.
Under either of these circumstances, we will require additional cash resources.

We have limited cash resources available and Zapata does not have an
obligation to contribute additional funds to us. Although we are not prohibited
from raising additional capital by any of the arrangements between Zapata and
us, Zapata's control of approximately 98% of our outstanding common stock and
the significant potential for percentage dilution of a potential investor's
percentage ownership in our common stock presented by our business model may
make it difficult for us to raise additional capital in the future or to raise
capital on terms favorable to us. Zapata's control may deter potential investors
from investing in Zap.Com because Zapata's voting control over Zap.Com will make
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 of their shares. This may also adversely affect the market
value and liquidity of our common stock and our ability to issue additional
common stock.

If we raise additional funds in the future through the issuance of equity,
equity-related or debt securities any or all of those securities may have
rights, preferences or privileges senior to those of the rights of our common
stock and our stockholders may also experience significant dilution.

Our Brand May Not Achieve the Broad Recognition Necessary to Succeed and
Building Brand Identity Is Likely to Be Expensive

We believe that quality recognition and perception of the Zap.Com brands is
vital to our success. Development and continued awareness of our brands will
depend largely on our success in establishing and maintaining a position as a
leading Internet business that operates a high quality network which is valuable
to both potential customers, like advertisers and e-commerce partners, and Web
site owners who are potential ZapNetwork participants. We cannot assure you that
we will be able to establish and maintain this position. In order to promote and
maintain our brands, we expect to incur significant expenses. In addition, the
development of our brand names depends, to a significant degree, on the
protection of our trademarks and trade names, which cannot be assured. If our
brand enhancement strategy is unsuccessful, these expenses may never be
recovered and we may be unable to realize significant revenue and our ability to
succeed will be seriously impeded.

Our Intellectual Property Rights May Be Difficult to Protect

We protect our proprietary rights through a combination of patent,
copyright, trade secret and trademark law. A provisional patent application has
been filed in the United States Patent and Trademark office that is
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directed at three different aspects of the business processes we plan to employ
in our business. A provisional patent application is a type of application under
which a patent will not issue, but which will provide a priority date for a
regular patent application that is filed within a one year period following the
filing of the provisional patent application. We also currently have pending in
the United States Patent and Trademark Office applications for the registration
of the "Zap.Com," "ZapNetwork," "ZapBox," and "My ZapBox" service marks. In the
future we intend to file additional applications with the United States Patent
and Trademark Office, and where appropriate, in foreign jurisdictions, to
attempt to register trademarks/service marks that we adopt. We also generally
enter into confidentiality agreements with our employees, consultants and
corporate partners to control access to, and distribution of, proprietary
information.

We cannot assure you that a patent will ever be issued on our pending
provisional patent application or that our pending trademark applications will
be approved. Further, we can not assure you that if issued or approved, the
patent or registered marks will not be successfully challenged by others or
invalidated through administrative process or litigation. We also do not know if
the pending or future applications will be issued within the scope of the claims
sought.

If a patent is issued on the final application, it is possible that:

- if there are variations in the application of the business model
claimed in the patent to the products and services we offer in the
future, the patent, if issued, may not be effective in preventing one
or more third parties from utilizing a copycat business model to offer
the same product or service in one or more categories; and

- a competitor may develop and utilize a business model that appears
similar to the system described in the final patent application, but
which has sufficient distinctions that it does not fall within the
scope of any patent which may arise from this type of application.

We plan to collect and utilize data derived from user activity on the
ZapBox, the ZapNetwork and the Web sites on our network. We plan to use this
data for ad targeting and delivery of other programming on, and predicting
performance of, our network. We cannot assure you that any trade secret,
copyright or other protection will be available to protect this information.

The validity, enforceability and scope of protection of proprietary rights
in Internet-related businesses is uncertain and still evolving. In addition, the
laws of some foreign countries do not protect proprietary rights to the same
extent as they do in the United States. Our means of protecting our proprietary
rights in the United States or abroad may not be adequate and competitors and
third parties may infringe or misappropriate our proprietary rights.

In addition, claims may be asserted against us in the ordinary course of
our business, including claims of unfair competition, dilution or alleged
infringement of the trademark/service marks and other intellectual property
rights of third parties by us, the Web site owners who belong to the ZapNetwork
or strategic partners. For example, Zapata and an affiliated entity were
previously named in a trademark infringement and dilution action for use of the
"ZAP" mark. Please see Item 3. "Legal Proceedings." Further, because patent
applications in the United States are not publicly disclosed until the patent is
issued, an application may have been filed which relates to our proposed
services and processes. Infringement and similar claims and any resulting
litigation could subject us to significant liability for damages and could
result in the invalidation of our proprietary rights. In addition, even if we
prevail, this type of litigation could be time consuming and expensive to
defend, and could result in the diversion of our time and attention. Any claims
or litigation commenced by third parties may also result in limitations on our
ability to use the trademarks/service marks and other intellectual property
unless we enter into arrangements with the third parties responsible for those
claims or suits which may be unavailable on commercially reasonable terms.

In addition, inasmuch as we license a substantial portion of our content
from third parties, our exposure to copyright infringement actions,
trademark/service mark infringement actions and dilution actions may increase
because we must rely upon those third parties for information as to the origin
and ownership of the licensed content. We have obtained appropriate
representations and indemnities to cover these risks; however,

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we cannot assure you that the representations are accurate or the indemnities
sufficient to compensate for the breach of any of those representations.

It May be Difficult to Protect Our Domain Names and Associated Goodwill

Domain names are Internet addresses for accessing Web sites that are
registered with Network Solutions, Inc. We are currently the registered holder
of 60 Internet domain names. The most important of these domain names is our
home page at www.zap.com. The purpose of registering domain names other than
www.zap.com is to provide a medium through which Zap.Com can execute marketing
activities. As of the date of this document, we have not developed operational
sites for most of these 59 other domain names. If developed, these sites are
expected to support and compliment the content of ZapNetwork sites.

Third parties may submit false registration data to Network Solutions, Inc.
attempting to transfer one or more of our domain names to their control. Third
parties have challenged our rights to use some of our domain names, and we
expect that they will continue to do so. We cannot guarantee you that third
parties will not in the future be successful in having transferred to them, or
challenging our right to use, domain names which we have registered.

There is also a possibility of the enactment of laws and/or regulations
regarding domain names which could have an adverse effect on our registered
domain names. Further, regulatory bodies could make changes to the existing
registration system for domain names. Therefore, our domain names may lose their
value, or we may have to obtain entirely new domain names in addition to or in
lieu of our registered domain names if reform efforts result in a restructuring
in the current system. Therefore, we could lose our domain names or be unable to
prevent third parties from acquiring domain names that infringe or otherwise
decrease the value of our domain names, trademarks/service marks and other
proprietary rights.

We May Have Difficulty Integrating Acquired Businesses or Generating Acceptable
Returns From Future Acquisitions or Investments

We may in the future make selective acquisitions or strategic investments
in complementary businesses, products, services or technologies. If we buy a
company, we could have difficulty in integrating and assimilating that company's
operations, technologies, products and personnel. In addition, the key personnel
of the acquired company may decide not to work for us, leaving us without any
experience in a new market. These difficulties could disrupt our ongoing
business and distract our management and employees. We may not successfully
overcome these and other problems encountered in connection with potential
acquisitions or strategic investments. In addition, an acquisition could
materially impair our operating results by diluting our stockholders' equity,
causing us to incur additional debt or requiring us to amortize acquisition
expenses and acquired assets.

We May be Unable to Manage Our Growth Effectively Which Could Cause Our Business
and Operating Results to Suffer

To meet our growth strategy, our operations must rapidly and significantly
expand. This growth will place a substantial strain on our limited management,
operational and financial resources and systems. To integrate all Web sites
which join our network and to manage the growth of our operations will require
the development and implementation of our operational and financial systems,
procedures and controls and training, managing and expansion of our employee
base. Our management will also be required to establish and maintain
relationships with customers, Web site owners participating in the ZapNetwork
and strategic and commercial partners and to maintain control over our strategic
direction in a rapidly changing environment. We cannot provide any assurance
that we will be able to effectively manage the expansion of our operations or
that the systems we develop and implement or procedures or controls that we
adopt will be adequate to support the rapid execution necessary to fully exploit
the market opportunity we have identified. If we do not manage our growth
effectively, our business and operating results may suffer.

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Our Management Does Not Have Experience in Acquiring, Building or Managing an
Internet Network

Our senior management's only experience in managing an Internet related
business has been their oversight of Zapata's Word and Charged Webzines. They
have not had any previous experience managing a network based Internet company.
We cannot guarantee you that our management will be able to effectively
implement our business model. To address this, we may add key personnel in the
near future. Competition for personnel with Internet experience is intense due
to the competitive nature of the job market. If we do not succeed in attracting
new employees with the appropriate experience and skills or retaining and
motivating our current and future employees, our business could suffer
significantly. Please see Item 10. "Directors and Executive Officers of the
Registrant."

International Expansion May Impose Additional Costs on Us that We May Not be
Able to Recover

We may pursue in the future international operations and international
sales and marketing efforts. International operations have inherent risks,
including:

- changes in regulatory requirements;

- reduced protection for intellectual property rights in some countries;

- potentially adverse tax consequences;

- general import/export restrictions relating to encryption technology
and/or privacy;

- difficulties and costs of staffing and managing foreign operations;

- political and economic instability either domestically or
internationally;

- fluctuations in currency exchange rates; and

- seasonal reductions in business activity during the summer months in
Europe and in other parts of the world.

Each of these risks may impose additional costs on our business which we
may not be able to recover.

Many of Our Competitors have Substantially Greater Resources, Longer Operating
Histories, Established Customer Bases and Broader Product Offering

Our initial competitors include DoubleClick and 24/7 Media and other
Internet advertising networks and providers of advertising inventory management
products and services. CMGI owns or controls several Internet advertising and
marketing companies, including AdForce, AdKnowledge and Engage Technologies. As
a result of these transactions, CMGI now owns several companies, including
AdSmart Network and Engage Technologies. Through the combination of these
companies, CMGI will compete with our network. Other potential competitors
include large and established companies like Microsoft, America Online, CNET,
CNN/ Time Warner, Excite@Home, Yahoo!, Disney (which owns the GO Network) and
Lycos. Also several companies have developed applications similar to the ZapBox,
such as Jotter, MyExcite and Netzero, which use Internet technologies to deliver
advertising and access to content to Internet users who sign-up for their
services. We will also compete for advertising with Web site publishers as well
as traditional media like television, radio, print and outdoor advertising.

The market for Internet advertising and related products is intensely
competitive. We expect our competition to be intense and to continue to increase
because there are no substantial barriers to entry. The level of competition is
also likely to increase as current competitors increase the sophistication of
their offerings and as new participants enter the market. Competition may also
increase as a result of industry consolidation. In the future, as we expand our
service offerings, we expect to encounter increased competition in the
development and delivery of our services. In addition, new technologies and the
expansion of existing technologies may increase competitive pressures on us.
Increased competition is likely to put downward pressure on pricing and gross
margins. Further, many of our existing and potential competitors have
substantially greater financial, technical and marketing resources than we do,
longer operating histories,

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greater name recognition, established customer bases and broader product and
service offerings than we do. These factors may allow them to respond more
quickly than we can to new or emerging technologies and changes in customer
requirements. These competitors may also be able to devote greater resources
than we can to the development, promotion and sale of their products and
services. These competitors may also engage in more extensive research and
development, undertake more far-reaching marketing campaigns, adopt more
aggressive pricing policies and make more attractive offers to existing and
potential employees, strategic partners, advertisers and Web publishers. Our
competitors may also develop products or services that are equal or superior to
our solutions or that achieve greater market acceptance than our solutions. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products or services to address the needs of our prospective
advertising, ad agency and Web publisher customers. As a result, it is possible
that new competitors may emerge and rapidly acquire significant market share. As
a result, we may be unable to secure and grow a customer base. We cannot assure
you that we will be able to compete effectively or that competitive pressures
will not adversely affect our business, results of operations or financial
condition. Please see Item 1. "Business -- Competition."

Our Computer Systems, and the Systems of Others We Depend on, May Not Operate
Properly Because of Year 2000 Problems

As of and after March 16, 2000, Zap.Com has not experienced any Year 2000
related disruptions to its computer systems or business operations. If any of
these errors or defects do exist, we may incur material expenses to resolve
them. Although to date we have not experienced any date related problems with
the hardware and software used in our systems, we cannot assure you that such
problems may not surface. If these systems do experience date related problems,
we could experience a delay in generating revenue, diversion of our resources or
incur expenses that could unexpectedly materially adversely affect our financial
condition and prospects. Please see Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000."

If the Web Infrastructure Were to Fail, We Would not be Able to Deliver
Programming to Our Networks

Our future success substantially depends, among other things, upon the
continued expansion and maintenance of the Web infrastructure as a reliable
network backbone on which we can transmit programming to our network. This
requires the necessary speed, capacity and security and timely development of
enabling products like high speed modems, for providing reliable Web access and
services. We can provide no assurance that the Web infrastructure will continue
to be able to support the growing demands placed upon it as the Web continues to
grow in terms of the number of users, the frequency of users and the increased
bandwidth requirements so that the performance or reliability of the Web will
not be adversely affected by these demands. In addition, the Internet could lose
its viability due to delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet activity or due to
increased governmental regulation. Changes in, or insufficient availability of,
telecommunications services to support the Internet could also result in slower
response times and adversely affect usage of the Web and the effectiveness of
our network. In fact, the Web has experienced a variety of outages and other
delays due to damage to a portion of its Web infrastructure. Any future outages
or delays could adversely impact the Web sites participating in the ZapNetwork.
Any outages of this nature or any other failure of the Internet infrastructure
to effectively support the expected growth in the Web, could delay the growth of
the Internet and adversely affect our revenues and cause us to incur additional
operating expenses.

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On-Line Security Breaches Could Harm Our Reputation, Our Ability to Pursue
e-Commerce Opportunities and Expose Us to Liability

A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. As we
establish e-commerce relationships, we plan to rely on encryption and
authentication technology licensed from third parties to provide the security
and authentication necessary to effect secure transmission of confidential
information over our network. It is possible that advances in computer
capabilities, new discoveries or other developments will result in a compromise
or breach of the algorithms that we select for this purpose. This could have a
material adverse effect on our business, including our reputation, and our
ability to secure and continue e-commerce relationships.

We may be required to expend significant capital and other resources to
protect against the threat of security breaches like this or to alleviate
problems caused by these breaches. The public's concern over the security of
Internet transactions and the privacy of users may also inhibit the growth of
the Web, especially as a means of conducting commercial transactions. To the
extent that our activities or those of third party contractors involve the
storage and transmission of proprietary information, like credit card numbers,
security breaches could expose us to a risk of loss or litigation and possible
liability. We can provide no assurance that our security measures will prevent
security breaches or that failure to prevent these types of security breaches
will not significantly limit our ability to pursue e-commerce opportunities or
expose us to third party liability.

If We are Unable to Keep up With Rapid Technological Change, Our Service will
Become Less Desirable

The Internet industry and its markets for commercial activities are
characterized by rapidly changing customer and user requirements, frequent new
service or product announcements, introductions and enhancements and evolving
industry standards and practices. In addition, these market characteristics are
heightened by the inclination of companies from many industries to offer
Internet-based products and services. As a result, our future success will
depend on our ability to adapt to rapidly changing technologies, to adapt our
service offerings to evolving industry standards and to continually improve the
performance, features and reliability of our services in response to competitive
service offerings and the evolving demands of the marketplace on a timely and
cost-effective basis. In addition, the widespread adoption of new Internet,
networking or telecommunications technologies or other technological changes
could require us to incur substantial expenditures to modify or adapt our
services or infrastructure. We cannot assure you that we will be successful in
using new technologies effectively or adapting the ZapNetwork to customers,
network site members or emerging industry standards. If we are unable to adapt
in a timely manner in response to changing market conditions or customer
requirements, our services may become less desirable, which could adversely
affect our ability to generate and grow revenues.

Regulatory and Legal Uncertainties Could Increase Our Cost and Decrease the
Demand for Our Service

Although there are currently few laws or regulations that specifically
regulate activity on the Internet, the number of these laws and regulations is
increasing. A number of legislative and regulatory proposals are under
consideration by federal, state, local and foreign governments and agencies.
Laws or regulations may be adopted with respect to the Internet relating to
liability for information retrieved from or transmitted over the Internet,
online content regulation, user privacy, pricing, taxation and quality of
products and services.

Moreover, the applicability to the Internet of existing laws governing
issues like intellectual property ownership and infringement, copyright,
trademark, trade secret, obscenity, libel, employment and personal privacy is
uncertain and developing. The extent to which existing laws relating to issues
like property ownership, pornography, libel and personal privacy are applicable
to the Internet is uncertain. Some foreign governments, like Germany, have
enforced laws and regulations related to content distributed over the Internet
that are more strict than those currently in place in the United States. Any new
legislation or regulation, or the application or interpretation of existing
laws, may decrease the growth in the use of the Internet, which could in turn
decrease the demand for Zap.Com's service, increase Zap.Com's cost of doing
business or otherwise have a material adverse effect on our business and
operating results.

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In addition, there is growing public concern about privacy on the Internet
and in particular about the collection and use of information about Internet
users. Several private actions have been commenced other Internet companies
challenging their collection and use of personal information about Internet
users. The outcome of these actions and the impact of these cases on Zap.Com, if
any, is unclear and could increase Zap.Com's cost of doing business or otherwise
harm our business interests. Please see Item 1. "Business -- Government
Regulation and Legal Uncertainties."

It is Difficult to Predict Whether a Market for Our Stock Will Develop, and if a
Market Develops, the Market Price of Our Stock will Likely be Volatile

Our common stock has been thinly-traded on the NASD OTC electronic bulletin
board since November 30, 1999 with the daily volume in our shares ranging from
100 shares to 19,800 shares as of March 16, 2000. We cannot assure you that
investors will develop an interest in our common stock so that an active trading
market develops or, if this occurs, how active that trading market will be or
whether it will be sustained. In addition, the market for our securities is
highly volatile. Between November 30, 1999 and March 16, 2000, the trading price
of our common stock has fluctuated between $0.25 and $12.00 per share. It is
likely that the price of our common stock will continue to fluctuate widely in
the future. A number of specific factors that may affect the price, liquidity
and volatility of our securities, include:

- the minimal supply of shares eligible for public resale as of the date
of this document;

- actual or anticipated fluctuations in our quarterly operating results;

- operating results that vary from expectations as to our future
financial performance or changes in financial estimates for us by
securities analysts and investors;

- announcements of technological innovations or new services by us or
our competitors;

- announcements by us or our competitors of significant contracts,
acquisitions, strategic relationships, joint ventures, capital
commitments and the status of the growth of our network;

- announcements by third parties of significant claims or proceedings
against us;

- future sales or issuances of equity by us;

- change in the status of our intellectual property rights;

- the operating and stock price performance of other comparable
companies; and

- that our common stock is not followed by any market analysts.

Any of these factors could adversely affect the trading price and liquidity
of our stock. Also, the stock market in general has experienced extreme price
and volume volatility that has especially affected the market prices of
securities of many Internet-related and small capitalization companies. Stock
prices for Internet-related companies are often influenced by rapidly changing
perceptions about the future of the Internet or the results of other Internet or
technology companies, rather than specific developments relating to the issuer
of that particular stock. If our stock price is volatile, a securities class
action may be brought against us. Class action litigation could result in
substantial costs and divert our management's attention and resources. Any
adverse determination in this litigation could also subject us to significant
liabilities.

If at any time the price of our common stock declines below $5.00 and at
such time our securities are not then registered on a national securities
exchange or quoted in the Nasdaq system and our net assets are below $5,000,000
(or after April 2002 $2,000,000) and our average revenue for the last three
years has been less than $6,000,000, our common stock would be considered "penny
stock" under the Securities Exchange Act of 1934 and the rules of the SEC.
Broker-dealer practices in connection with transactions in "penny stocks" are
regulated by certain penny stock regulations adopted by the SEC. These
regulations require a broker-dealer, prior to a transaction in a penny stock
with customers other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with their spouse), to provide the customer with
a risk disclosure document, disclosure of

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market quotations, if any, disclosure of the compensation of the broker-dealer
and its salesperson in the transaction and monthly account statements showing
the market values of the common stock held in the customer's accounts. The bid
and offer quotation and compensation information must be provided prior to
effecting the transaction and must be contained on the customer's confirmation.
Consequently, the "penny stock" rules may restrict the ability of broker-dealers
to sell our securities and adversely affect your ability to sell our securities
in the secondary market and the price of our securities in the secondary market.

Zapata's Control and the Presence of Interlocking Directors and Officers Create
Potential Conflicts of Interest and Could Prevent a Change of Control

As of the date of this report Zapata owns approximately 98% of our
outstanding common stock. As a result, Zapata's directors and officers will be
able to control the outcome of substantially all matters submitted to the
stockholders for approval, including the election of directors and any proposed
merger, liquidation, transfer or encumbrance of a substantial portion of its
assets, or amendment to our charter to change our authorized capitalization.
This concentration of ownership may also have the effect of delaying or
preventing a change in control of Zap.Com even if it would be beneficial to our
stockholders. Please see Item 12. "Security Ownership of Certain Beneficial
Owners and Management -- Principal Stockholders."

In addition, our executive officers also are directors, officers or
employees of Zapata and, in most cases, either own, or hold an option to
purchase, equity securities of Zapata. In addition, Malcolm Glazer, who is the
father of our President and Chief Executive Officer, Avram Glazer, controls and
beneficially owns approximately 44% of Zapata's outstanding common stock. As a
result, these executive officers have inherent potential conflicts of interest
when making decisions related to transactions between us and Zapata. Zapata's
ability to control matters listed above together with the potential conflicts of
interest of its executive officers who also serve as executive officers of
Zap.Com and our initial Chairman of the Board could adversely affect the trading
price and liquidity of our common stock. These factors could limit the price
that investors might be willing to pay for our common stock in the future.

In addition, those persons serving as both our officers and key employees
and those of Zapata have not committed to devote any specific percentage of
their business time to us. The competing claims upon each officer's time and
energies could divert their attention from our affairs, placing additional
demands on our resources. The efforts of all or any of these individuals may not
be sufficient to meet both our needs and those of Zapata. If we were deprived of
access to any key members of our management team, or other personnel, or lost
access to these type of services altogether, our business, prospects, results of
operations and financial condition could be materially adversely affected.

On October 20, 1999, we entered into agreements with Zapata, including an
investment and distribution agreement, a tax sharing and indemnity agreement, a
services agreement and a registration rights agreement for the purpose of
defining our on-going relationship with Zapata following Zapata's distribution
of our shares on November 12, 1999. Please see Item 13. "Certain Relationships
and Related Transactions -- Related Party Transactions -- Zapata Corporation."
We cannot assure you that the terms of these agreements, or the related
transactions, are on terms as favorable to us as could have been obtained from
unaffiliated third parties.

We Have Liabilities As A Member of Zapata's Consolidated Tax Group

We have been, and expect to continue to be, for the foreseeable future, a
member of Zapata's consolidated tax group under federal income tax law until the
Zap.Com securities held by Zapata do not constitute either 80% of the voting
power or the market value of Zap.Com's outstanding stock. Each member of a
consolidated group for federal income tax purposes is jointly and severally
liable for the federal income tax liability of each other member of the
consolidated group. Similar rules may apply under state income tax laws.
Although we have entered into a tax sharing and indemnity agreement with Zapata,
if Zapata or members of its consolidated tax group (other than us and our
subsidiaries) fail to pay tax liabilities arising prior to the time that we are
no longer a member of Zapata's consolidated tax group, we could be required to
make payments in respect of these tax liabilities and these payments could
materially adversely affect our financial condition.

34
<PAGE> 37

Please see Item 13. "Certain Relationships and Related Transactions -- Related
Party Transactions -- Tax Sharing and Indemnity Agreement."

Because We Do Not Intend To Pay Any Cash Dividends On Our Common Stock, Holders
Of Our Common Stock Will Not Be Able To Receive A Return On Their Shares Unless
They Sell Their Shares

We have paid no dividends on our common stock and we cannot assure you that
we will achieve sufficient earnings to pay cash dividends on our common stock in
the near future. Further, we intend to retain any future earnings to fund the
development and expansion of our operations. Therefore, we do not anticipate
paying any cash dividends on our common stock in the foreseeable future. Unless
we pay dividends, holders of our common stock will not be able to receive a
return on their shares unless they sell them, which could be difficult unless a
more active market develops in our stock. Please see Item 5. "Market for the
Registrant's Common Equity and Related Stockholder Matters."

The Anti-Takeover Provisions In Our Corporate Documents May Have An Adverse
Effect On The Market Price Of Our Common Stock

If Zapata were ever to lose voting control over us, provisions within our
charter and by-laws could make it more difficult for a third party to gain
control of us. This would be true even if a change in control might be
beneficial to our stockholders. This could adversely affect the market price of
our common stock. These provisions include:

- the elimination of the right to act by written consent by stockholders
after Zapata no longer holds a controlling interest in us;

- the elimination of the right to call special meetings of the
stockholders by stockholders except that Zapata may do so as long as
it holds a controlling interest in us;

- the creation of a staggered board of directors; and,

- the ability of the board of directors to designate, determine the
rights and preferences of, and to issue preferred stock, without
stockholder consent, which could adversely affect the rights of our
common stockholders.

A Substantial Amount of our Common Stock is Eligible for Sale into the Market
and this could Depress our Stock Price

Sales of a substantial number of shares of our common stock in the future
could cause the market price of our common stock to decline. As of the date of
this document, we have outstanding 50,000,000 shares of common stock, of which
Zapata owns 48,972,258 shares, Malcolm Glazer owns 707,908 shares, Avram Glazer
owns 50,020 shares and the public owns 269,814 shares. In addition, we have
3,000,000 shares of common stock reserved for issuance under our 1999 Long-Term
Incentive Plan and 2,000,000 shares of our common stock reserved for issuance of
shares that may be purchased under the warrants granted to American Internetwork
Sports.

All of our shares distributed by Zapata to its stockholders on November 12,
1999 are freely tradable without restriction or further registration under the
federal securities laws unless acquired by our "affiliates," as that term is
defined in Rule 144 under the Securities Act of 1933. All of the shares held by
Zapata (other than 1,000,000 shares available for sale by Zapata under an
effective registration statement), acquired by "affiliates" in Zapata's
distribution or by the Glazers in connection with their November 1999 investment
are "restricted securities" under the Securities Act and available for resale
upon compliance with Rule 144, including the one year holding period and the
timing, manner and volume of sales of these shares. In the absence of Rule 144's
availability, these shares may only be publicly resold if they are registered or
another exemption is available.

We have registered 1,000,000 shares of Zap.Com common stock for resale by
Zapata from time to time under a separate registration statement. We have also
granted Zapata registration rights with respect to all of

35
<PAGE> 38

its shares. These registration rights effectively allow Zapata to register and
publicly sell all of its shares at any time and to participate as a selling
stockholder in future public offerings by Zap.Com.

The warrants issued to American Internetwork Sports generally vest over
three years and expire in November 2004; however, the warrants will accelerate
and immediately vest and become exercisable if Zap.Com terminates its consulting
agreement with American Internetwork Sports without cause or there is a change
in control of Zap.Com. Please see Item 13. "Certain Relationships and Related
Transactions -- Related Party Transactions -- American Internetwork Sports
Company, LLC." All of the shares issued to American Internetwork Sports upon
exercise of the warrants, will be available for public resale under Rule 144
following the expiration of a one year holding period commencing upon the
issuance of shares after the exercise of the warrants and compliance with the
other requirements of Rule 144. Further, prior to the first anniversary of the
issuance of the warrants, Zap.Com is required to register the shares issued upon
exercise of the warrants on a registration statement on Form S-8. This
registration statement will automatically become effective upon filing and
permit unrestricted public resale of these shares.

In addition, we also intend to file a registration statement on Form S-8
under the Securities Act covering the shares reserved for issuance under the
1999 Long-Term Incentive Plan. This registration statement will also
automatically become effective upon filing and permit unrestricted public resale
of these shares. In addition to shares covered by this document, we have
registered on a shelf basis under the registration statement of which this
document forms a part 30,000,000 shares of our common stock for issuance from
time to time in the future in connection with acquisitions, mergers, other
business combinations, future offerings to Web site owners who apply to join our
network, to strategic and commercial partners and in connection with future
promotions and other events. All of the shares which are issued to Web site
owners in connection with this offering or in connection with these other
transactions will be freely tradable. The sale of a substantial amount of these
shares into the market could cause the price of our stock to drop. In addition,
sales could create the perception to the public of difficulties or problems with
our business. As a result, these sales also might make it more difficult for us
to sell equity or equity related securities in the future at a time and price
that we deem appropriate.

Investors will Experience Dilution with Future Stock Issuances

We currently intend to finance a significant amount of the growth in the
ZapNetwork with shares of our common stock. Under the pricing formula we expect
to use to purchase web site rights, the number of shares of our common stock to
be issued to potential network members will be a function of trading prices
prior to each of the payment dates under the ZapNetwork agreement and the
applicable per share floor price, Further, the purchase price is subject to
adjustment if a Web site's traffic declines below a specified level.
Accordingly, we can only predict the maximum and not the actual number of shares
of common stock to be issued in connection with this offering.

In addition, we may from time to time issue additional shares in the future
in connection with promotions and other events. Please see Item 1.
"Business -- Building the ZapNetwork". We currently have 1,500,000,000
authorized shares of common stock. As of the date of this document, we have
50,000,000 shares of common stock outstanding. We will be able to finance our
growth, future acquisitions and promotional or other events by issuing
significant amounts of additional shares of common stock without obtaining
stockholder approval of these issuances, provided we comply with the rules and
regulations of any exchange or national market system on which our shares are
then listed. As of the date of this document, we have registered under the
registration statement of which this document forms a part 30,000,000 shares on
a shelf basis for offer and issuance from time to time in connection with future
acquisitions (including additional Web site rights) and promotions or similar
events. To the extent we use our common stock in this manner in the future,
dilution in percentage ownership will be experienced by existing stockholders.

As of the date of this report, we have reserved 5,000,000 shares of common
stock for issuance on the exercise of 2,000,000 warrants issued to American
Internetwork Sports and options issued or to be issued pursuant to our 1999
Long-Term Incentive Stock Option Plan, including outstanding options for the
purchase of 608,000 shares of our common stock. The warrants have an exercise
price of $2.00 per share and generally

36
<PAGE> 39

become exercisable annually in equal one third amounts commencing in October
2000. The outstanding options and warrants have a weighted average exercise
price of $2.07 per share, vest annually in ratable amounts over three years from
the grant date, the first of which was in October 1999 and have a term of five
years. The issuance of shares upon the exercise of the above securities will
have a dilutive effect on our common stock, which may adversely effect the price
of our common stock.

WE CANNOT ASSURE YOU THAT WEB SITE OWNERS WILL NOT BE TERMINATED FROM THE
ZAPNETWORK

While certain Web site owners may be conditionally admitted to the
ZapNetwork, there can be no assurance that we will continue those Web sites in
the network after conducting our evaluation of their Web sites or that they will
not be terminated in the future under the terms of the ZapNetwork agreement that
they enter into with us. If one or more of the Web site owners accepted into our
network is terminated, then any shares registered in this offering and
subscribed by these Web site owners may be used for the acquisition of Web site
rights from other Web site owners. There is no assurance that we will be able to
use those shares to acquire Web site rights from additional Web sites on
acceptable terms.

WE INTEND TO RELY ON REPRESENTATIONS, WARRANTIES AND INDEMNITIES IN CONNECTION
WITH THE ACQUISITION OF WEB SITE RIGHTS RATHER THAN DUE DILIGENCE AND
MISREPRESENTATION AND BREECHES OF WARRANTIES BY WEB SITE OWNERS COULD HAVE
MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION OR RESULTS OF OPERATIONS

In accepting a Web site owner into the ZapNetwork, we expect to rely upon
the representations, warranties and indemnities made by the Web site owner in
their ZapNetwork agreement with respect to their Web sites and related matters.
We do not intend to perform any due diligence investigation in connection with
these transactions other than a third party audit of the unique user traffic on
the Web site during the initial evaluation period. There can be no assurance
that these representations and warranties will be true and correct and material
adverse facts relating to the Web sites and related matters may exist that we
are unaware of and which could cause harm to us or our network. In addition, any
material misrepresentations could have a material adverse effect on our
financial condition and results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risks relating to Zap.Com's operations result primarily from changes
in interest rates. Zap.Com invests its cash and cash equivalents in Federal Home
Loan Mortgage Corporate Discount Notes -- zero coupon, with maturities of 30
days or less.

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<PAGE> 40

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Zap.Com Corporation

In our opinion, the accompanying balance sheets and related statements of
operations, cash flows and changes in stockholders' equity (deficit) present
fairly, in all material respects, the financial position of Zap.Com Corporation
(a Development Stage Company, the "Company") at December 31, 1999 and December
31, 1998 and the results of its operations and its cash flows for the period
from April 2, 1998 (date of inception) to December 31, 1998, for the year ended
December 31, 1999, and for the cumulative period from April 2, 1998 (date of
inception) to December 31, 1999 in conformity with accounting principles
generally accepted in the United States. 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 of these statements in accordance with the auditing standards generally
accepted in the United States, which require that we plan and perform the audit
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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

New Orleans, Louisiana
January 28, 2000

38
<PAGE> 41

ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............................ $ -- $ 7,579,363
Interest receivable.................................. -- 45,914
Prepaid assets and other receivables................. -- 549,466
----- ------------
Total current assets.............................. -- 8,174,743
Property and equipment, net................................. -- 41,424
Capitalized software costs.................................. -- 272,581
----- ------------
Total assets...................................... $ -- $ 8,488,748
===== ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES:
Current liabilities:
Accounts payable..................................... $ -- $ 299,538
Due to related party................................. -- 39,588
Accrued liabilities.................................. -- 410,179
Amounts due to stockholder and affiliates............ 783 3,900
----- ------------
Total current liabilities......................... 783 753,205
----- ------------
Total liabilities................................. 783 753,205
----- ------------
COMMITMENT & CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.001 par value, 1,500,000,000 shares
authorized, 49,450,000 shares issued and outstanding as
of December 31, 1998; $.001 par value, 1,500,000,000
shares authorized, 50,000,000 issued and outstanding as
of December 31, 1999................................... 10 50,000
Additional paid in capital................................ -- 21,549,996
Preferred stock, $0.01 par value, 150,000,000 shares
authorized, 0 shares issued and outstanding as of
December 31, 1998 and 1999............................. -- --
Deficit accumulated during the development stage.......... (793) (3,535,733)
Deferred consulting expense............................... -- (10,328,720)
----- ------------
Total stockholders' (deficit) equity.............. (783) 7,735,543
----- ------------
Total liabilities and stockholders' equity........ $ -- $ 8,488,748
===== ============
</TABLE>

The accompanying notes are an integral part of these financial statements.
39
<PAGE> 42

ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]

STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these financial statements.
40
<PAGE> 43

ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
CUMULATIVE
FROM APRIL 2, 1998 FROM APRIL 2, 1998
(DATE OF INCEPTION) FOR THE (DATE OF INCEPTION)
THROUGH YEAR ENDED THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 1999
------------------- ----------------- -------------------
<S> <C> <C> <C>
Cash flows used in operating activities:
Net loss................................ $(793) $(3,534,940) $(3,535,733)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation......................... -- 8,105 8,105
Warrants expense..................... -- 1,171,276 1,171,276
Changes in assets and liabilities
Interest receivable................ -- (45,914) (45,914)
Prepaid expenses................... -- (549,466) (549,466)
Accounts payable................... -- 299,538 299,538
Accrued liabilities................ -- 410,179 410,179
----- ----------- -----------
Total adjustments............... -- 1,293,718 1,293,718
----- ----------- -----------
Net cash used in operating
activities...................... (793) (2,241,222) (2,242,015)
----- ----------- -----------
Cash flows used by investing activities:
Capital additions....................... -- (282,522) (282,522)
----- ----------- -----------
Net cash flows used by investing
activities......................... -- (282,522) (282,522)
----- ----------- -----------
Cash flows provided by financing
activities:
Issuance of common stock and
recapitalization of common stock..... 10 49,990 50,000
Additional paid in capital.............. -- 10,050,000 10,050,000
Amounts due to stockholder and
affiliates........................... 783 3,117 3,900
----- ----------- -----------
Net cash flows provided by
financing activities.......... 793 10,103,107 10,103,900
----- ----------- -----------
Net change in cash and cash equivalents... -- 7,579,363 7,579,363
Cash and cash equivalents at beginning of
period.................................. -- -- --
----- ----------- -----------
Cash and cash equivalents at end of
period.................................. $ -- $ 7,579,363 $ 7,579,363
===== =========== ===========
Supplemental schedule of noncash investing
activities
Transfer of equipment from related
party................................ $ -- $ 39,588 $ 39,588
===== =========== ===========
Supplemental schedule of noncash financing
activities
Warrants issued for consulting
services -- fair value............... $ -- $11,499,996 $11,499,996
===== =========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.
41
<PAGE> 44

ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED TOTAL
-------------------- DURING THE DEFERRED STOCKHOLDERS'
SHARES PAID IN DEVELOPMENT CONSULTING EQUITY
(NOTE 8) AMOUNT CAPITAL STAGE EXPENSE (DEFICIT)
---------- ------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, APRIL 2, 1998 (date of
inception)..................... -- $ -- $ -- $ -- $ -- $ --
Issuance of 49,450,000 shares
common stock on April 2, 1998
at no par value................ 49,450,000 10 -- -- -- 10
Net loss......................... -- -- -- (793) -- (793)
---------- ------- ----------- ----------- ------------ -----------
BALANCE, DECEMBER 31, 1998....... 49,450,000 10 -- (793) -- (783)
Recapitalization of common stock,
November 12, 1999 (Note 3)..... -- 49,440 -- -- -- 49,440
Common stock issued.............. 550,000 550 1,099,450 -- -- 1,100,000
Additional capital
contribution -- Zapata
Corporation.................... -- -- 8,950,550 -- -- 8,950,550
Warrants issued.................. -- -- 11,499,996 -- (11,499,996) --
Warrants expense................. -- -- -- -- 1,171,276 1,171,276
Net loss......................... -- -- -- (3,534,940) -- (3,534,940)
---------- ------- ----------- ----------- ------------ -----------
BALANCE, DECEMBER 31, 1999....... 50,000,000 $50,000 $21,549,996 $(3,535,733) $(10,328,720) $ 7,735,543
========== ======= =========== =========== ============ ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.
42
<PAGE> 45

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
majority-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 seeks to become a global
network of independently owned Web sites that deploy the Company's Web
application, the ZapBox, on a perpetual basis through which the Company will
distribute user content, advertising and e-commerce. The Company has not yet
commenced significant operations, and its primary activity to date has been
research and investigation of Internet industry opportunities and the
development of the Company's business model, the establishment of strategic
relationships to provide internet connectivity and technology systems to support
its network which it plans to build and the creation of the ZapBox and the
Zap.Com homepage. In order to successfully execute its business model, the
Company must contract with Web sites to participate in the Company's network,
and complete the public registration of its common stock to be used to acquire
space on the independent Web sites who join the Company's network. The business
model to be employed by the Company and its potential for profit is unproven.
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.

Cash and Cash Equivalents

The Company considers all highly liquid debt of instruments with an
original maturity of 90 days or less to be cash equivalents. Cash and cash
equivalents are carried at cost, which approximates market.

Property and Equipment

Property, equipment and software are stated at cost, less accumulated
depreciation. Depreciation is based on the estimated useful lives of property
and equipment using the straight-line method. The estimated useful lives for
most depreciable assets are five to seven years.

Internal Use Software

The Company capitalizes software for internal use in accordance with
American Institute of Certified Public Accountants ("AICPA") Statement of
Position ("SOP") 98-1 "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use". This standard requires certain direct develop-

43
<PAGE> 46
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

ment costs associated with internal use software to be capitalized including
external direct costs of material and services and payroll costs for employees
devoting time to the software projects. These costs are amortized over the
useful life of the software beginning when the asset is substantially ready for
use. Costs incurred during the preliminary project stage as well as for
maintenance and training are expensed as incurred. Internal use software will be
depreciated over three years.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the amount by which the carrying amount of the assets exceeds
the fair value of the assets.

Deferred Consulting Expense

Deferred expenses for warrants represents the current cumulative unearned
value of warrants issued to non-employees for consulting services. The Company
accounts for these warrants in accordance with Emerging Task Force Issue
("EITF") 96-18 "Accounting For Equity Instruments That Are Issued To Other Than
Employees For Acquiring, Or In Conjunction With Selling, Goods or Services"
which requires such transactions to be expensed 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.

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. Basic loss per share is computed by dividing the net
loss by the sum of the weighted average number of shares of common stock
outstanding. Diluted earnings per share is based on the potential dilution that
would occur on exercise or conversion of securities into common stock. At
December 31, 1999, outstanding options for 578,000 and warrants for 2,000,000
shares of common stock with weighted average per share exercise prices of $2.00
that could potentially dilute basic earnings per share in the future were not
included in the computation of diluted net loss per share because to do so would
have an antidilutive effect for the periods presented.

Start-up Costs

In accordance with AICPA SOP 98-5 -- "Reporting on the Costs of Start-up
Activities", the Company expenses all start-up activities, including
organization costs, as they are incurred.

Cost of Revenues

Cost of revenues consist primarily of hosting, bandwidth, communications,
ad delivery, and content license fees costs associated with the Company's banner
and other Internet properties.

Product Development

Product development expenses consist primarily of costs for research,
design and development of the Company's proprietary Internet properties.

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
44
<PAGE> 47
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

differences between the financial reporting and tax reporting basis of assets
and liabilities, and operating loss and tax credit carry forwards 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 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 carry
forwards and expiration dates.

Equity Based Compensation

The Company accounts for its employee stock option plans in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations. As
such, compensation expense related to employee stock options is recorded only
if, on the date of grant, the fair value of the underlying stock exceeds the
exercise price. The Company adopted the disclosure-only requirements of SFAS No.
123, "Accounting for Stock-Based Compensation", which allows entities to
continue to apply the provisions of APB Opinion No. 25 for transactions with
employees and provide pro forma net income and pro forma earnings per share
disclosures for employee stock grants made in 1999 and future years as if the
fair-value-based method of accounting in SFAS No. 123 had been applied to these
transactions.

Comprehensive Income

Effective January 1, 1999, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income.

Segments

Effective January 1, 1999, the Company adopted the provisions of SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The Company has determined that it does not have any separately
reportable business segments as of December 31, 1998 and December 31, 1999.

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.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities." The
statement requires the recognition of all derivatives as either assets or
liabilities in the balance sheet and the measurement of those instruments at
fair value. The

45
<PAGE> 48
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

accounting for changes in the fair value of a derivative depends on the planned
use of the derivative and the resulting designation. Because the Company does
not currently hold any derivative instruments and does not engage in hedging
activities, the impact of the adoption of SFAS No. 133 is not currently expected
to have a material impact on financial position, results of operations or cash
flows. The Company will be required to implement SFAS No. 133, as amended, in
the first quarter of fiscal 2001.

NOTE 3. STOCKHOLDERS' EQUITY (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 December 31, 1999 and December 31, 1998, the Company has accumulated a
deficit during its development stage of $3,535,733 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 primary purpose of the distribution was 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 consisted of: (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. Also, the Company Board of Directors
approved a 49,450 for one stock split immediately prior to the distribution. All
share and per share information has been retroactively restated to reflect this
split.

On November 12, 1999, Zapata distributed 477,742 shares of Zap.Com common
stock to its stockholders. Also, on November 12, 1999, Zapata provided the
Company with $9,000,000, including $49,450 to meet the stated capital
requirements of Nevada law to effectuate the 49,450 for one stock split which
occurred 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 $8,000 for the twelve month period ending December 31, 1999. No
depreciation expense was recorded for the period ended December 31, 1998.

NOTE 5. CAPITALIZED SOFTWARE COSTS

Capitalized software costs consists of the costs incurred during the
development of ZapBox. The ZapBox is a software application which enables the
Company to sell advertising across its network and is developed under a
development, service and license agreement with a third party vendor. Future
versions of the ZapBox to the extent that they add functionality that enable
advertising on the Company's network will be capitalized. Maintenance and
training costs will be expensed as incurred. These costs will be amortized over
a three year period on a straight line basis beginning in the period in which
the software is placed in service. As of

46
<PAGE> 49
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 1999 the Company has capitalized $272,581 in software development
costs. The ZapBox became functional in January, 2000 at which time the Company
will begin to amortize these costs.

NOTE 6. ACCRUED LIABILITIES:

Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
Accrued audit and legal costs...................... $ -- $145,000
Accrued printing costs............................. -- 203,553
Accrued expenses................................... -- 61,626
----- --------
$ -- $410,179
===== ========
</TABLE>

NOTE 7. INCOME TAXES

As a result of net operating losses, the Company has not recorded a
provision for income taxes. The components of the deferred tax assets and
related valuation allowance at December 31, 1998 and December 31, 1999,
respectively are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $ 278 $ 1,237,507
----- -----------
Total deferred tax assets........................ 278 1,237,507
Less: valuation allowance........................ (278) (1,237,507)
----- -----------
Net deferred taxes............................... $ -- $ --
===== ===========
</TABLE>

At December 31, 1998 and 1999, the Company fully reserved its deferred tax
assets. The Company believes sufficient uncertainty exists regarding the
realizability of the deferred tax assets such that a full valuation allowance is
required. As of December 31, 1999, Zap.Com has $3,535,733 of net operating loss
carry forwards that expire in 2019.

NOTE 8. STOCK OPTIONS AND STOCK ISSUANCE PLANS:

The Company's 1999 Long-Term Incentive Plan (the "1999 Plan") provides for
the ability of the Company to provide awards to existing and future officers,
other employees, consultants and directors of the Company from time to time. The
1999 Plan is intended to promote the long-term financial interests and growth of
the Company by providing employees, officers, directors and consultants of the
Company with appropriate incentives and rewards to enter into and continue in
the employ of, or relationship with, the Company and to acquire a proprietary
interest in the long-term success of the Company.

Under the 1999 Plan, 3,000,000 shares of common stock are available for
awards. The 1999 Plan provides for the grant of any or all of the following
types of awards: stock, options, stock appreciation rights, stock awards, and
cash awards. The 1999 Plan provides that awards may be made thereunder of stock
options, restricted stock grants, stock appreciation rights and cash awards.

Future allocation of awards under the 1999 Plan is not currently
determinable as the allocation is dependent upon future decisions to be made by
the committee in its sole discretion, and the applicable provisions of the 1999
Plan. The exercise price of any stock option may, at the discretion of the
committee, be

47
<PAGE> 50
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

paid in cash or by surrendering shares or another award under the 1999 Plan,
valued at fair market value on the date of exercise or any combination of cash
or stock.

Stock appreciation rights are rights to receive, without payment to
Zap.Com, cash or shares of Zap.Com common stock with a value determined by
reference to the difference between the exercise or strike price of the stock
appreciation rights and the fair market value or other specified valuation of
the shares at the time of exercise. Stock appreciation rights may be granted in
tandem with stock options or separately.

Stock awards may consist of shares of Zap.Com common stock or be
denominated in units of shares of common stock. A stock award may provide for
voting rights and dividend equivalent rights. The committee may specify
conditions for awards, including vesting service and performance conditions.
Vesting conditions may include, without limitation, provision for acceleration
in the case of a change-in-control of Zap.Com, vesting conditions and
performance conditions, including, without limitation, performance conditions
based on achievement of specific business objectives, increases in specified
indices and attaining specified growth measures or rates.

On October 20, 1999, the Company granted options to purchase 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.

<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Options Outstanding at April 2, 1998 (Date of Inception)... -- $ --
Granted.................................................... -- --
Options Outstanding at December 31, 1998................... -- --
Granted.................................................... 578,000 2.00
------- -----
Options Outstanding at December 31, 1999................... 578,000 $2.00
======= =====
Options Exercisable at December 31, 1999................... -- $ --
======= =====
</TABLE>

Additional information with respect to the outstanding options as of
December 31, 1999 is as follows:

<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE AVERAGE
RANGE OF OF SHARES REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONTR. LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$2.00 578,000 5.00 $2.00 -- $--
======= ==== ===== == ==
</TABLE>

The Company has elected to follow the measurement provisions of APB Opinion
No. 25, under which no recognition of expense is required in accounting for
stock options granted to employees for which the exercise price equals or
exceeds the fair market value of the stock at the grant date. All of the
outstanding options at December 31, 1999 under the 1999 Plan were granted prior
to the Company becoming a public company. Accordingly, the Company determined
there was no compensation expense attributable to these options based on an
independent valuation of the Company on the date of grant.

To estimate compensation expense which would be recognized under SFAS No.
123, "Accounting for Stock-based Compensation", the Company uses the modified
Black-Scholes option-pricing model with the following weighted-average
assumptions for options granted through December 31, 1999: risk-free interest
rate of 5.92%, expected dividends of 0%, no volatility (prior to becoming a
public company), and an expected life of four years.

48
<PAGE> 51
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Had compensation expense for the 1999 Plan been determined based on fair
value at the grant date for the awards under the Plan consistent with SFAS No.
123, the Company's net losses for the period from April 2, 1998 (date of
inception) through December 31, 1998, and the year ended December 31, 1999,
would have been adjusted to the following pro forma amounts:

<TABLE>
<CAPTION>
APRIL 2, 1998
(DATE OF INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
------------------- -----------------
<S> <C> <C>
Net Loss, As Reported.............................. $ (793) $(3,534,940)
Net Loss, Pro Forma................................ $ (793) $(3,554,990)
Basic Net Loss Per Share, Pro Forma................ $(0.00) $ (0.07)
</TABLE>

NOTE 9. RELATED PARTY TRANSACTIONS

The Company has utilized the services of the management and staff of its
majority shareholder, Zapata, during its start-up period. The actual payroll and
related fringe benefit costs for these employees of approximately $369,000 was
allocated to the Company using a percentage of time analysis.

Zap.Com's headquarters in Rochester, New York are located in space
subleased to it by Zapata. Under the sublease agreement, annual rental payments
are allocated on a cost basis. Total rental payments to Zapata in 1999 were
$31,900. The Company also received server and network equipment from a related
entity to operate its Web site www.zap.com, and to perform beta testing on the
ZapBox. 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 November 12, 1999, Zap.Com had satisfied all of its
startup and offering costs with borrowings from Zapata. On November 12, 1999,
Zapata contributed $9,000,000 in cash and forgave $1,000,000 in intercompany
debt from the Company pursuant to the completion of the distribution. The
Company used the proceeds to pay down the remainder of its debt to Zapata and to
fund its day to day operations.

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 accounts for
this transaction in accordance with FASB EITF 96-18, which requires the
recognition of 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. Accordingly, the Company estimated the fair
value of the warrants at December 31, 1999 using the Black-Scholes
option-pricing model with the following weighted-average assumptions: dividend
yield of 0.00%, risk-free interest rate of 6.15%; an expected life of 3.75 years
and a volatility of 442.2%. Based on these assumptions, the fair value of each
warrant at December 31, 1999 was $5.75. As a result, the Company recorded the
expected cost of all 2,000,000 warrants of approximately

49
<PAGE> 52
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

$11,500,000 as paid in capital-warrants with an equal offset to deferred
expense-warrants. The deferred consulting expenses will be ratably charged to
earnings over the three year vesting period of the warrants. As of December 31,
1999, approximately $1,171,000 was charged to earnings for these warrants.

NOTE 10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues.............................. $ -- $ -- $ -- $ --
Total operating expenses.............. $ 304,185 $ 361,550 $ 745,813 $ 2,036,391
Loss from operations.................. $ (304,185) $ (361,550) $ (745,813) $(2,177,551)
Interest income....................... $ -- $ -- $ -- $ 54,159
Net loss.............................. $ (304,185) $ (361,550) $ (745,813) $(2,123,392)
Per share data (basic and diluted).... $ (0.01) $ (0.01) $ (0.02) $ (0.04)
Shares outstanding.................... 49,450,000 49,450,000 49,450,000 50,000,000
</TABLE>

NOTE 11. SUBSEQUENT EVENT

On January 27, 2000, Zap.Com granted stock options to an officer of Zap.Com
to purchase up to 25,000 shares of common stock at an exercise price of $9.00
per share. On January 14, 2000 Zap.com granted to an officer of Zap.Com options
to purchase up to 5,000 shares of common stock at an exercise price of $5.50 per
share.

50
<PAGE> 53

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Pursuant to General Instruction G on Form 10-K, the information called for
by Item 10 of Part III of Form 10-K is incorporated by reference to the
information set forth in the Company's Information Statement relating to its
2000 Annual Meeting of Stockholders (the "2000 Information Statement") to be
filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), in response to Items 401 and 405 of Regulation S-K
under the Securities Act of 1933, as amended, and the Exchange Act ("Regulation
S-K").

ITEM 11. EXECUTIVE COMPENSATION

Pursuant to General Instruction G of Form 10-K, the information called for
by Item 11 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 2000 Information Statement in response to Item 402
of Regulation S-K, excluding the material concerning the report on executive
compensation and the performance graph specified by paragraphs (k) and (l) of
such Item.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Pursuant to General Instruction G of Form 10-K, the information called for
by Item 12 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 2000 Information Statement in response to Item 403
of Regulation S-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Pursuant to General Instruction G of Form 10-K, the information called for
by Item 13 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 2000 Information Statement in response to Item 404
of Regulation S-K.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) LIST OF DOCUMENTS FILED

(1) Financial Statements

Consolidated financial statements, Zap.Com Corporation and subsidiary
companies.

Report of PricewaterhouseCoopers, LLP, independent accountants,
Consolidated balance sheet December 31, 1998 and 1999.

Consolidated statement of operations for the years ended December 31, 1998
and 1999.

Consolidated statement of cash flows for the years ended December 31, 1998
and 1999.

Consolidated statement of stockholders' equity for the years ended December
31, 1998 and 1999.

Notes to consolidated financial statements.

(2) Exhibits

Those exhibits required to be filed by Item 601 of Regulation S-K are
listed in the Exhibit Index immediately preceding the exhibits filed herewith
and such listing is incorporated herein by reference.

51
<PAGE> 54

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
<C> <S>
3.1 Restated Articles of Incorporation of Zap.Com (Exhibit No.
3.1)*
3.2 Amended and Restated By-laws of Zap.Com (Exhibit No. 3.2)*
4.1 Specimen Stock Certificate (Exhibit No. 4.1)*
4.2 Warrant dated October 20, 1999 issued to American
Internetwork Sports Company, LLC (Exhibit No. 4.2)*
4.3 Zap.Com 1999 Long-Term Incentive Plan (Exhibit No. 4.3)*
10.1 Investment and Distribution Agreement between Zap.Com and
Zapata (Exhibit No. 10.1)*
10.2 Services Agreement between Zap.Com and Zapata (Exhibit No.
10.2)*
10.3 Tax Sharing and Indemnity Agreement between Zap.Com and
Zapata (Exhibit No. 10.3)*
10.4 Registration Rights Agreement between Zap.Com and Zapata
(Exhibit No. 10.4)*
10.5 Consulting Agreement between Zap.Com and American
Internetwork Sports Company, LLC (Exhibit No. 10.5)*
10.6 NetGravity Ad Center Services Agreement dated September 30,
1999 between NetGravity, Inc. and Zap.Com (Exhibit No.
10.6)*
10.7 Letter Agreement dated October 18, 1999 between EMC, Inc.
and Zap.Com (Exhibit No. 10.7)*
10.8 Termination Agreement dated January 10, 2000, between
Zap.Com and DoubleClick, Inc. (successors-in-interest to
NetGravity, Inc.) (Exhibit 10.8)**
10.9 Internet Services Agreement dated December 28, 1999 between
Zap.Com and EMC Inc. (Exhibit 10.9)**
10.10 Assignment and Assumption Agreement dated July 10, 1990
between Zap.com and DoubleClick, Inc. (Exhibit 10.10)**
10.11 Development, License and Services Agreement dated March 2,
2000 between Zap.Com and Auragen Communications, Inc.
(Exhibit 10.11)**
21.1 Subsidiaries of the Registrant (filed herewith)
23.1 Consent of PricewaterhouseCoopers LLP (filed herewith)
27.1 Financial Data Schedule
</TABLE>

- ---------------
* Incorporated by reference to the exhibit number referenced in the parenthesis
and filed with Zap.Com's Registration Statement on Form S-1 (File No.
333-76135) originally filed with the Securities and Exchange Commission on
April 12, 1999, as amended.

** Incorporated by reference to the exhibit number in the parenthesis and filed
with Zap.Com's Registration Statement on Form S-1 (File No. 333-93837)
originally filed with the Securities and Exchange Commission on December 30,
1999, as amended.

(b) CURRENT REPORTS ON FORM 8-K

No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.

Filed herewith as a financial statement schedule is the schedule supporting
Zap.Com's consolidated financial statements listed under paragraph (a) of this
Item, and the Independent Accountants' Report with respect thereto.

52
<PAGE> 55

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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)

By: /s/ AVRAM GLAZER
------------------------------------
Name: Avram Glazer
Title: President and CEO

Dated: March 30, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

/s/ AVRAM GLAZER President and Chief Executive March 30, 2000
- --------------------------------------------------- Officer (Principal Executive
Avram Glazer Officer) and Director

/s/ LEONARD DISALVO Vice President and Chief March 30, 2000
- --------------------------------------------------- Financial Officer (Principal
Leonard DiSalvo Financial and Accounting
Officer)
</TABLE>

53
<PAGE> 56

EXHIBIT INDEX

<PAGE> 1
Exhibit 21.1

SUBSIDIARIES OF THE REGISTRANT

None.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statement on Form S-1/A (No. 333-93837) of Zap.Com Corporation of our report
dated January 28, 2000 relating to the financial statements and financial
statement schedules, which appears in this Form 10-K.

PricewaterhouseCoopers LLP

New Orleans, Louisiana
March 17, 2000

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,579,363
<SECURITIES> 0
<RECEIVABLES> 45,914
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,174,743
<PP&E> 322,110
<DEPRECIATION> 8,105
<TOTAL-ASSETS> 8,488,748
<CURRENT-LIABILITIES> 753,205
<BONDS> 0
0
0
<COMMON> 50,000
<OTHER-SE> 7,685,543
<TOTAL-LIABILITY-AND-EQUITY> 8,488,748
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 141,160
<TOTAL-COSTS> 3,589,099
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,534,940)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,534,940)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,534,940)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)

</TABLE>