<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: NOT ASSIGNED
ZAP.COM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
STATE OF NEVADA C-76-0571159
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
100 MERIDIAN CENTRE, SUITE 350
ROCHESTER, NY 14618
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (716) 242-8600
-----------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO__.
NUMBER OF SHARES OUTSTANDING (LESS TREASURY SHARES) OF THE REGISTRANT'S COMMON
STOCK, PAR VALUE $0.001 PER SHARE, ON MAY 1, 2000: 50,000,000
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ZAP.COM CORPORATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of March 31, 2000 (unaudited) and
December 31, 1999..............................................................................................3
Unaudited Statements of Operations for the
three months ended March 31, 1999 and
2000 and the cumulative period from April 2, 1998 (date of inception) to
March 31, 2000...............................................................................................4
Unaudited Statements of Cash Flows for the
three months ended March 31, 1999 and 2000 and the cumulative period
April 2, 1998 (date of inception) to March 31, 2000...........................................................5
Notes to Financial Statements...................................................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..............................................................................................12
ITEM 2. CHANGES IN SECURITIES..........................................................................................12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................................................12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................................13
ITEM 5. OTHER INFORMATION..............................................................................................13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............................................................................13
SIGNATURES..............................................................................................................14
EXHIBIT INDEX...........................................................................................................
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND NOTES
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------
(Unaudited)
ASSETS:
Current assets:
<S> <C> <C>
Cash and cash equivalents ............................ $ 7,579,363 $ 6,257,786
Interest receivable .................................. 45,914 21,329
Prepaid assets and miscellaneous receivables ......... 549,466 408,258
------------ ------------
Total current assets ............................ 8,174,743 6,687,373
Property and equipment, net .......................... 41,424 40,702
Capitalized software- ZapBox ......................... 272,581 476,278
------------ ------------
Total assets ............................... $ 8,488,748 $ 7,204,353
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities:
Accounts payable ..................................... $ 299,538 $ 184,155
Due to related party ................................. 39,588 39,588
Accrued liabilities .................................. 410,179 170,959
Amounts due to stockholder and affiliate ............. 3,900 28,178
------------ ------------
Total current liabilities ....................... 753,205 422,880
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 1,500,000,000 shares
authorized, 50,000,000 issued and outstanding as of
December 31, 1999 and March 31, 2000 ............ 50,000 50,000
Additional paid in capital ......................... 21,549,996 23,033,780
Deficit accumulated during the development
stage ........................................... (3,535,733) (6,624,582)
Deferred expense -warrants ........................ (10,328,720) (9,677,725)
------------ ------------
Total stockholders' equity ...................... 7,735,543 6,781,473
------------ ------------
Total liabilities and stockholders' equity ...... $ 8,488,748 $ 7,204,353
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
UNAUDITED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
FROM APRIL 2, 1998
FOR THE THREE FOR THE THREE (DATE OF INCEPTION)
MONTHS ENDED MONTHS ENDED THROUGH
MARCH 31, 1999 MARCH 31, 2000 MARCH 31, 2000
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues ............................... $ -- $ -- $ --
Cost of revenues ....................... -- 193,203 334,363
------------ ------------ ------------
Gross Profit ................. (193,203) (334,363)
Operating expenses:
Product development .................. 10,263 7,610 59,998
Sales and marketing .................. 37,007 142,542 668,081
General and administrative ........... 256,255 702,766 2,394,190
Consulting expense ................... -- 2,134,779 3,306,055
Depreciation ......................... 660 1,812 9,917
------------ ------------ ------------
Total operating expenses ..... 304,185 2,989,509 6,438,241
------------ ------------ ------------
Loss from operations . (304,185) (3,182,712) (6,772,604)
Interest income ........................ -- 93,863 148,022
------------ ------------ ------------
Loss before income taxes ............... (304,185) (3,088,849) (6,624,582)
Income taxes............................ -- -- --
------------ ------------ ------------
Net loss ............................... $ (304,185) $ (3,088,849) (6,624,582)
============ ============ ============
Per share data (basic and diluted):
Net loss per share ................... $ (.01) $ (.06) $ (.13)
============ ============ ============
Average common shares outstanding .... 49,450,000 50,000,000 49,556,233
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
UNAUDITED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
FROM APRIL 2, 1998
FOR THE THREE FOR THE THREE (DATE OF INCEPTION)
MONTHS ENDED MONTHS ENDED THROUGH
MARCH 31, 1999 MARCH 31, 2000 MARCH 31, 2000
----------------- ----------------- -------------------
Cash flows used in operating activities:
<S> <C> <C> <C>
Net loss .............................. $ (304,185) $ (3,088,849) $ (6,624,582)
Adjustments to reconcile net loss to
net cash used in operating
activities
Depreciation and amortization..... 1,224 38,815 46,920
Warrants expense ................. -- 2,134,779 3,306,055
Changes in assets and liabilities
Interest receivable ............ -- 24,585 (21,329)
Prepaid expenses ............... -- 141,209 (408,257)
Accounts payable ............... -- (115,476) 184,155
Accrued liabilities ............ 157,238 (239,128) 170,958
Deferred offering costs ........ (73,164) -- --
--------------- --------------- ---------------
Total adjustments ........... 85,298 1,984,877 3,278,502
--------------- --------------- ---------------
Net cash flows used in operating
activities .................. (218,887) (1,104,065) (3,346,080)
--------------- --------------- ---------------
Cash flows used by investing activities
Capital additions and software
development costs.................. -- (241,790) (524,312)
--------------- --------------- ---------------
Net cash flows used by investing
activities .................. -- (241,790) (524,312)
--------------- --------------- ---------------
Cash flows provided by financing
activities
Issuance of common stock ............ 10 -- 10,100,000
Amounts due to stockholder and
affiliates ....................... 218,877 24,278 28,178
--------------- --------------- ---------------
Net cash flows provided by
financing activities ........ 218,887 24,278 10,128,178
--------------- --------------- ---------------
Net change in cash and cash
equivalents ......................... (1,321,577) 6,257,786
Cash and cash equivalents at beginning
of period ........................... -- 7,579,363 --
--------------- --------------- ---------------
Cash and cash equivalents at end of
period .............................. $ -- $ 6,257,786 $ 6,257,786
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BUSINESS AND ORGANIZATION
Zap.Com Corporation, a Nevada corporation (the "Company", "Zap.Com")
was incorporated in April 1998 and is a majority-owned subsidiary of Zapata
Corporation ("Zapata"). 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. As of 3/31/00, Zapata held approximately
98% of our outstanding shares of common stock. Zap.Com's common stock trades
on the NASD's otc electronic bulletin board under the symbol "ZPCM".
Zap.Com is a development stage company that 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. The ZapBox provides personalized
portal-like functionality and content wrapped around an Internet advertising
banner. The ZapBox provides users with the ability to utilize the ZapBox's
functionality as they travel the ZapNetwork and allows Zap.Com to place
advertising on member sites. Future ZapBox releases are expected to also allow
Zap.Com to place e-commerce opportunities on member sites. The Company has not
yet commenced significant operations, and its primary activity to date has been
research and investigation of Internet industry opportunities, the development
of the Company's business model, the establishment of strategic relationships to
provide internet connectivity and technology systems to support its network, 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.
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 unaudited financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The financial statements reflect all
adjustments that are, in the opinion of management, necessary to fairly present
such information. All such adjustments are of a normal recurring nature.
Although Zap.Com believes that the disclosures are adequate to make the
information presented not misleading, certain information and footnote
disclosures, including a description of significant accounting policies
normally included in financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted pursuant to such
rules and regulations. These condensed financial statements should be read in
conjunction with the financial statements and the notes thereto included in
Zap.Com's latest Annual Report on Form 10-K filed with the Securities and
Exchange Commission. The results of operations for the fiscal quarter from
January 1, 2000 to March 31, 2000 are not necessarily indicative of the results
for any subsequent quarter or the entire fiscal year ending December 31, 2000.
Cash and Cash equivalents
As of March 31, 2000 and December 31, 1999 Zap.Com held approximately
$6.3 and $7.8 million in short-term investments in government backed
securities. The company considers those investments with a maturity period
greater than 90 days and less than 360 days to be short-term investments.
NOTE 2. STOCKHOLDERS' EQUITY
As of March 31, 2000 and December 31, 1999, the Company has accumulated
a deficit during its development stage of $6,624,582 and $3,535,733,
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.
On October 20, 1999, Zap.Com issued warrants to purchase 2,000,000
shares of Zap.Com common stock to non-employees. (See Note 4).
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 an additional 5,000 shares of common stock at a
$5.50 per share exercise price. These options will generally vest ratably on an
annual basis on the first three anniversaries of their issuance and have five-
year terms.
On March 3, 2000, the SEC declared 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.
During April 2000, Zap.Com decided to restructure the relationship
which it had previously proposed to potential ZapNetwork members. Zap.Com had
originally sought to build the ZapNetwork by purchasing perpetual display rights
to a Web site in exchange for common stock of Zap.Com. Zap.Com is now seeking to
enter into contractual relationships with ZapNetwork members that are terminable
on, among other things, 90 days notice from either party thereby eliminating the
purchase element. In addition Zap.Com has changed the compensation to ZapNetwork
members to revenue sharing payments based on banner advertising and
participation in the ZapNetwork unique user stock bonus plan.
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NOTE 3. CAPITALIZED SOFTWARE- ZAPBOX
Capitalized software costs consist of the costs incurred for the
development of the ZapBox. The ZapBox is a Web application which currently
enables the Company to sell advertising across its network and was developed
under a development, service and license agreement with a third party vendor.
Costs of future versions of the ZapBox will be capitalized to the extent that
they add functionality that enable advertising and e-commerce on the Company's
network. These costs are 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
March 31, 2000, the Company has capitalized approximately $513,000 in software
development costs. The ZapBox became functional in January, 2000 at which time
the Company began to amortize these costs. Amortization expense of approximately
$37,000 was charged to cost of revenues for the three month period ended March
31, 2000. There were no capitalized costs that were amortizable during the
period ended March 31, 1999. Maintenance and training costs are expensed as
incurred.
NOTE 4. RELATED PARTY TRANSACTIONS
On October 20, 1999, the Company granted to American Internetwork Sports
Company, LLC a stock warrant 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 Financial Accounting Standards Board
Emerging Issues Task Force 96-18, which requires the recognition of expense
based on the then current fair value of the warrant at the end of each
reporting period with adjustment of prior period expense to actual expense at
each vesting date.
The Black-Scholes option-pricing model was used to estimate the fair
value of the warrants with the following weighted-average assumptions: dividend
yield of 0.00%, risk-free interest rate of 6.34%; an expected life of 5.00 years
and a volatility of 268.3 Based on these assumptions, the fair value of each
warrant at March 31, 2000 was $6.50 per share subject to the warrant. As a
result, the Company has recorded the expected cumulative cost of the warrant, as
of March 31, 2000, of approximately $13,000,000, including approximately
$1,500,000 recorded during the three months ended March 31, 2000, as additional
paid in capital -warrants with an equal offset to deferred expense- warrants.
The deferred expense- warrants will be pro-ratably charged to earnings over the
three year vesting period of the warrants. As of March 31, 2000, approximately
$3.3 million has been charged to earnings for this warrant of which $2.1 million
was recorded during the three months then ended.
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ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
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 our Web application, the ZapBox. We intend to distribute advertising and
e-commerce opportunities over the ZapNetwork. Currently, the ZapNetwork 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.
On March 3, 2000, the SEC declared 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 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.
During April 2000, Zap.Com decided to restructure the relationship
which it had previously proposed to potential ZapNetwork members. Zap.Com had
originally sought to build the ZapNetwork by purchasing perpetual display rights
to a Web site in exchange for common stock of Zap.Com. Zap.Com is now seeking to
enter into contractual relationships with ZapNetwork members that are terminable
on, among other things, 90 days notice from either party thereby eliminating the
purchase element. In addition Zap.Com has changed the compensation to ZapNetwork
members to revenue sharing payments based on banner advertising and
participation in the ZapNetwork unique user stock bonus plan. Under this plan,
members of the ZapNetwork are eligible to receive a stock based bonus based on
the estimated monthly traffic for their Web site. A bonus is awarded at the
beginning of a 12 month period and thereafter vests and is payable over a three
year period. Each year a new stock bonus is automatically rewarded unless the
ZapNetwork membership agreement is terminated by either party. Thus, after the
first 12 month bonus period, members may be eligible to receive up to three
concurrent bonuses.
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 and the acquisition and implementation of the
technology necessary to operate the ZapNetwork. 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 development and implementation of future ZapBox
releases, the establishment and continuation of strategic and commercial
relationships, increasing our employee base, growing and maintaining the
ZapNetwork, attracting and retaining advertising customers and e-commerce
partners, 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.
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 a
$2.00 per share exercise price. In addition, on October 20, 1999 Zap.Com granted
American Internetwork Sports, a related party, 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 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 5,000 shares of common stock at a $5.50 per share exercise
price. 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". In management's
opinion, the exercise price of the options was equal to or above the fair value
of Zap.Com's common stock on the date of grant and, accordingly, no compensation
charge was recorded in connection with the grant of these options. Zap.Com
accounts for the warrants in accordance with EITF Issue No. 96-18. Accordingly,
Zap.Com records non-cash 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 the warrants.
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
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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.
RESULTS OF OPERATIONS
For the three months ended March 31, 2000, Zap.Com experienced a net
loss of $3.1 million, including approximately $2.1 million of non-cash charges
associated with the warrants issued to American Internetwork Sports for
consulting services. During Zap.Com's development stage (which commenced on
April 2, 1998), Zap.Com has incurred a cumulative net loss of $6.6 million
including $3.3 million in non-cash charges associated with the warrants, and all
of the costs associated with the development and implementation of the
ZapNetwork, the ZapBox, and the public registration of our common stock.
For the three months ended March 31, 2000, operations consisted of the
following:
Revenues - Zap.Com did not generate any revenue for the three months
ended, March 31, 2000 and for the cumulative period from date of inception,
April 2, 1998 through March 31, 2000. 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 under the ZapNetwork membership agreement
currently being offered. 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.
Cost of revenues - Zap.Com records costs of revenues as those costs
associated with generating revenues, such as, hosting, bandwidth,
communications, ad delivery, content license and capitalized software
amortization. Cost of revenues were up 100% for the three months ended March
31, 2000 compared to the three months ended March 31, 1999 due to the deployment
and maintenance of the ZapBox.
Sales and marketing - Sales and marketing expenses consist primarily of
customer fulfillment and media relation costs. Sales and marketing expenses for
the three months ended March 31, 2000 increased by 385% over the same three
month period last year due to increased media relations and customer fulfillment
activity as well as additional staffing cost.
General and administrative - General and administrative expenses for
the three months ended March 31, 2000, were increased by 274% over the same
three month period last year primarily due to the Company's increased staffing
requirements. These expenses consisted primarily of legal and accounting
services, salaries and wages, (including costs allocated by Zapata pursuant to
the services agreement), printing and filing costs and various other start-up
costs. Effective as of May 1, 2000, Zapata waived its right under the Services
Agreement between Zapata and Zap.Com to be reimbursed for the cost of providing
to Zap.Com management services and personnel during the next 12 months.
Consulting expenses - Consulting expenses of $2,134,779 reflected the
fair market value of the portion of the American Internetwork Sports warrants
that will vest in October, 2000 deemed earned during the three months ended
March 31, 2000. Due to the variable nature of the accounting for these warrants,
consulting expense is expected to fluctuate greatly between reporting periods.
Zap.Com cannot predict the cost that will ultimately be recorded for these
warrants.
Interest Income - Interest Income is generated on cash reserves which
are invested in short term investment and in government securities. Interest
earned for the three month period ended March 31, 2000 and for the cumulative
period from inception of April 2, 1998 through March 31, 2000 was $93,863 and
$148,022, respectively.
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.
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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
e-commerce as a source of cash, the ZapBox and operational expenses associated
with the implementation of its business plan. As of March 31, 2000, Zap.Com had
approximately $6.3 million 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 and e-commerce relationships established. 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
advertising sales or e-commerce transactions 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 sufficient 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 for at least the next twelve months.
If sufficient sales are not made 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 also 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 will need
to raise additional funds.
In order to facilitate the initial growth of our network over the next
12 months, we plan to offer a limited amount of cash to Web site owners to
induce them to join our network. Zap.Com also plans to issue common stock to
ZapNetwork members who participate in the ZapNetwork unique user stock bonus
plan. This plan is intended to attract Web site owners to our network and to
retain them as members. 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
attraction to Web site owners of our unique user stock bonus plan 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 do not perceive Zap.Com common stock as an attractive incentive
to join and retain their memberships in the ZapNetwork, Zap.Com may need to
raise additional funds to facilitate 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.
Cash Flows From Operating Activities
Cash used in operating activities was $1.1 million in the first quarter
of 2000, compared to $0.2 million for the same period in 1999. The increase in
cash used in operating activities was generated principally by net losses, net
of non-cash depreciation expense and warrant expense, and changes in operating
assets and liabilities.
Cash Flows From Investing Activities
Cash used by investing activities was $0.2 million in the first quarter
of 2000, compared to $0 for the same period in 1999. This increase was driven by
costs incurred to develop our ZapBox.
Cash Flows From Financing Activities
Cash provided by investing activities was $24,278 in the first quarter
of 2000, compared to $218,887 for the same period in 1999. This decrease was
due primarily to Zap.Com's existence as a separately funded company in the most
recent quarter versus its reliance on Zapata in the first quarter of 1999 for
its funding requirements.
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
10
<PAGE> 11
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 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
expenses that could unexpectedly adversely affect our financial condition and
prospects.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
When used in this discussion, the words "anticipate," "should,"
"expect," "estimate," "project," and similar expressions are intended to
identify forward-looking statements. The forward-looking statements contained in
this report are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These statements involve predictions
of future Company performance, and are thus dependent on a number of factors
affecting the Company's performance. Where possible, specific factors that may
impact performance materially have been identified in connection with specific
forward-looking statements. Additional risks and uncertainties include, without
limitation, the impact of competition, seasonality and general economic
conditions, changes in technology, legal proceedings initiated by or against the
Company, changes in government regulation of the Company's products and
operations, and such other factors as are described in greater detail in the
Company's filings with the Securities and Exchange Commission, including its
1999 Report on Form 10-K and its filing on Form S-1.
11
<PAGE> 12
PART II. -OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
12
<PAGE> 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11 Statement Regarding Computation of Per Share
Earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ZAP.COM CORPORATION
(Registrant)
May 12, 2000
By: /s/ LEONARD DISALVO
(Vice President and
Chief Financial Officer)
14
<PAGE> 1
EXHIBIT 11
ZAP.COM CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Statement Regarding Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
March 31, March 31,
2000 1999
---------- ----------
<S> <C> <C>
Net loss(a) ...................................... $(3,088,849) $ (304,185)
Actual outstanding Common Shares at beginning of
period ......................................... 50,000,000 49,450,000 (1)
Sum of weighted average activity of Common
Shares issued for stock options and warrants ... -- --
Weighted Basic Shares(b) ......................... 50,000,000 49,450,000
Effect of assumed exercise of Common Stock
equivalents .................................... -- --
Weighted diluted shares(c) ....................... 50,000,000 49,450,000
Basic earnings per share(a/b) .................... (.06) (.01)
Diluted earnings per share(a/c) .................. (.06) (.01)
__________
(1) Outstanding shares retroactively adjusted to reflect 49,450 for one split
on November 12, 1999.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,257,786
<SECURITIES> 0
<RECEIVABLES> 21,329
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,687,373
<PP&E> 563,900
<DEPRECIATION> 46,920
<TOTAL-ASSETS> 7,204,353
<CURRENT-LIABILITIES> 422,880
<BONDS> 0
0
0
<COMMON> 50,000
<OTHER-SE> (6,781,473)
<TOTAL-LIABILITY-AND-EQUITY> 7,204,353
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 193,203
<TOTAL-COSTS> 193,203
<OTHER-EXPENSES> 2,989,509
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,088,849)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,088,849)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,088,849)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
