ZAPATA CORP, 10-K405, 1998-12-29

ZAPATA CORP
10-K405, 1998-12-29
FATS & OILS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the Fiscal year ended September 30, 1998

[ ] 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: 1-4219

ZAPATA CORPORATION
(Exact name of Registrant as specified in its charter)

STATE OF DELAWARE 76-0562134
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1717 ST. JAMES PLACE, SUITE 550 77056
Houston, Texas (Zip Code)
(Address of principal executive offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 623-0060

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

NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
Common Stock, $0.25 par value........................ New York Stock Exchange

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

None.

On December 21, 1998, there were outstanding 23,877,078 shares of the
Company's Common Stock, $0.25 par value. The aggregate market value of the
Company's Common Stock held by nonaffiliates of the Company is $100,514,757,
based on the closing price in consolidated trading on December 21, 1997, for the
Company's Common Stock. For the sole purpose of making this calculation, the
term "non-affiliate" has been interpreted to exclude the directors and corporate
officers. 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.

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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. [X]

Documents Incorporated By Reference: Portions of the Registrant's
definitive Proxy Statement for its 1999 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission pursuant to
regulations 14A, not later than 120 days after September 30, 1998, 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

PAGE
PART I

Item 1. Description of Business.......................................... 1

General.......................................................... 1
History.......................................................... 1
Omega Protein Corporation........................................ 2
Viskase Companies, Inc........................................... 5
Internet Business................................................ 6
Employees........................................................ 6
Financial Information About Industry Segments.................... 7

Item 2. Properties...................................................... 7

Item 3. Legal Proceedings............................................... 7

Item 4. Submission of Matters to a Vote of Security Holders............. 9

PART II

Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters............................................. 10

Item 6. Selected Financial Data......................................... 10

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 12
General.......................................................... 12
Liquidity and Capital Resources.................................. 13
Results of Operations............................................ 16
Recently Issued Accounting Standards............................. 20
Year 2000........................................................ 21
Significant Factors That Could Affect Future Performance and
Forward Looking Statements....................................... 22

Item 7.A. Quantitative and Qualitative Disclosure About Market Risk....... 23

Item 8. Financial Statements and Supplementary Data..................... 24

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 50

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 Managers.... 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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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 "believes," "expects,"
"intends," "anticipates," "plans," "seeks," "estimates," "projects" or similar
expressions. Forward-looking statements also include, among other things,
discussions concerning the Company's plans to expand its internet business, the
projected outcome and affect of pending litigation, and statements under the
caption "Part II - Item 7 - Management Discussion and Analysis of Financial
Condition and Results of Operation" (including statements concerning the state
of the Company's Year 2000 readiness for its computer systems). The ability of
the Company to predict results or the actual effect of future plans or
strategies is inherently uncertain. Important factors which may cause actual
results to differ materially from the forward-looking statements contained
herein or in other public statements by the Company are described under the
caption "Part II - Item 7 - Management Discussion and Analysis of Financial
Condition and Results of Operation-Significant Factors That Could Affect Future
Performance and Forward-Looking Statements" appearing in this Report and other
risks identified from time to time in the Company's filings with the Securities
and Exchange Commission ("SEC"), press releases and other communications. The
Company assumes no obligation to update forward-looking statements. All
references herein to a Fiscal year for Zapata Corporation and Omega Protein
Corporation are to a 12 month period ended September 30 of the referenced Fiscal
year.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

Zapata Corporation is a Delaware corporation organized in 1954. As used
herein, the term "Zapata" or the "Company" refers to Zapata Corporation or to
Zapata Corporation and its consolidated subsidiaries, as applicable. The
Company's principal executive offices are at 1717 St. James Place, Suite 550,
Houston, Texas 77056 (Telephone: (713) 940-6100).

Zapata's principal business activities are its ownership interests in a
significant majority owned consolidated subsidiary, Omega Protein Corporation
("Omega Protein") (formerly known as Marine Genetics Corporation and Zapata
Protein, Inc.), which is publicly traded, and a significant equity investment in
another publicly traded corporation, Viskase Corporation ("Viskase") (formerly
known as Envirodyne Industries, Inc.). Omega Protein is engaged in the marine
protein business and its stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "OME." Viskase is engaged in the food packaging business and
its stock is traded in the over-the-counter market on the Nasdaq SmallCap Market
under the symbol "VCIC." Zapata also operates the internet based magazines Word
and Charged, and, as of the date of this Report, holds approximately $112
million in certificates of deposit and high quality commercial paper graded A2P2
or better, which the Company plans to use in the acquisition of one or more
operating companies.

HISTORY

During the late 1990s, the Company exited the oil and gas business with
several dispositions. In Fiscal 1995, Zapata sold its U.S. natural gas producing
properties and in Fiscal 1996, Zapata sold its natural gas compression,
gathering and processing operations. Additionally, in Fiscal 1997, Zapata
disposed of its Bolivian oil and gas interests. See "Part II - Item 7 -
Management Discussion and Analysis of Financial Condition and Results of
Operation."

Since exiting the oil and gas business, the Company has been seeking
other business opportunities which would increase stockholder value. These
opportunities include acquisitions of or investments in businesses that the
Company believes have significant growth potential and are undervalued. If the

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Company makes equity investments, it will generally seek to do so at appropriate
levels so that it may exercise shareholder influence and possibly, control.

In August 1995, Zapata acquired 4,189,298 common shares of Viskase
(then known as Envirodyne), representing 31% of the then-outstanding shares of
Viskase common stock. In June and July 1996, Zapata purchased 1,688,006
additional Viskase common shares bringing Zapata's total ownership as of
September 30, 1998, to approximately 40% of Viskase's outstanding common shares.
See "Part II - Item 7 - Management Discussion and Analysis of Liquidity and
Capital Resources and Results of Operations - General."

To concentrate on and enhance its core business, during Fiscal 1997
and Fiscal 1998, Omega Protein sold a business and acquired certain assets to
increase it's harvesting and production capabilities. On September 16, 1997,
Omega Protein's wholly-owned subsidiary, Venture Milling Company, a Delaware
corporation ('Venture Milling'), sold substantially all of its assets to an
unrelated third party (the "Venture Milling Disposition") for nominal cash
consideration and the assumption of certain liabilities. Venture Milling was
primarily in the business of blending different animal protein products (i.e.,
fish meal, blood meal and feather meal) for sale to producers of feed for
broilers and other animals with low nutritional requirements. See "Part II -
Item 7 - Management Discussion and Analysis of Liquidity and Capital Resources
and Results of Operations - General." In November of 1997, Omega Protein
acquired the fishing and processing assets of two companies for an aggregate
purchase price of $28.1 million (the "Omega Protein Acquisitions") which
increased that corporation's harvesting and production capabilities. See "Part
II - Item 7 - Management Discussion and Analysis of Liquidity and Capital
Resources and Results of Operations - General".

On April 8, 1998, Omega Protein completed its initial public offering
of 8,500,000 shares of its common stock. In May 1998, the underwriters exercised
their over-allotment options to purchase an additional 1,275,000 Omega Protein
shares (collectively, the "Offering"). See "Part II - Item 7 - Management
Discussion and Analysis of Liquidity and Capital Resources and Results of
Operations - General." Immediately following the Offering, Zapata's ownership
interest in Omega Protein was reduced to 59.7% of Omega Protein's outstanding
common stock as of September 30, 1998.

In connection with the Offering, Zapata entered into several agreements
with Omega Protein to define their on-going relationship. In particular, they
entered into a Separation Agreement, a Registration Rights Agreement, a Tax
Indemnity Agreement, a Sublease Agreement and an Administrative Services
Agreement. These agreements were negotiated in the context of the entities'
parent-subsidiary relationship and, therefore, were not entered into as an
arms-length relationship. The Separation Agreement required Omega Protein to
repay $33.3 million of indebtedness and current payables owed to Zapata
contemporaneously with the consummation of the Offering and prohibited Zapata
from competing with Omega Protein for a period of five years. The Sublease
Agreement provided for Omega Protein to sublease its principal corporate offices
in Houston, Texas from Zapata and permitted Omega Protein to utilize certain
shared office equipment. The Registration Rights Agreement set forth the rights
and responsibilities of each party concerning certain registration statement
filings for the Omega Protein shares held by Zapata and for the sharing of fees
and expenses related to such filings. The Tax Indemnity Agreement required Omega
Protein to be responsible for federal, state and local income taxes from its
operations and the Administrative Services Agreement required Omega Protein to
provide certain administrative services to Zapata at Omega Protein's estimated
cost.

During Fiscal 1998, Zapata's Board of Directors made a strategic
decision to have Zapata enter the internet business. In April 1998, the Company
acquired the Internet based magizines Word and Changed and established a
multi-year service relationship with ICON CMT Corporation ("ICON CMT"). Due to
the volatility of the financial markets, in October 1998 Zapata terminated or
permitted to expire a number of other pending transactions that would have
greatly expanded the Company's internet business. Management subsequently
undertook a strategic review of the Company's internet initiative. On December
22, 1998, Zapata announced that following completion of the strategic review, it
had determinated to launch a new internet initiative that would involve the
development of an internet based brand name and a network of web sites. The
Company plans to review a number of potential relationships as part of this new
initiative.

OMEGA PROTEIN CORPORATION

Omega Protein's marine protein operations involve the production and
sale of a variety of protein products derived from menhaden, a species of fish
found along the Gulf of Mexico and Atlantic Omega Protein is the largest
processor, marketer and distributor of marine products (fish meal) and fats
(fish oil) in the United States. Omega Protein processes several grades of fish
meal (regular or "FAQ" meal and specialty meals), as well as fish oil and fish
solubles. It's fish meal products are primarily used as an ingredient in animal

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feed for poultry, swine, cattle, aquaculture and household pets. Omega
Protein's fish oil is primarily used as an ingredient in margarine and
shortening. It's fish solubles are sold primarily to livestock feed
manufacturers and for use as an organic fertilizer.

Fishing. During Fiscal 1998, Omega Protein owned a fleet of 66 fishing
vessels and 33 spotter aircraft for use in its fishing operations and also
leased aircraft where necessary to facilitate operations. During the 1998
fishing season in the Gulf of Mexico, where the fishing season runs from
mid-April through October, Omega Protein operated 38 fishing vessels and 32
spotter aircraft. The fishing area in the Gulf stretches from the south Texas
coastline to the panhandle of western Florida, with a concentration off the
Louisiana and Mississippi coasts. The fishing season on the Atlantic coast
begins in early May and usually extends into December. Omega Protein operated 13
fishing vessels and 9 spotter aircraft along the mid-Atlantic coast,
concentrated in and around the Chesapeake Bay.

Menhaden usually school in large, tight clusters and are commonly found
in warm, shallow waters. Spotter aircraft locate the schools and direct the
fishing vessels to them. The principal fishing vessels are called steamers,
which transport two 40-foot purse boats, each carrying several fishermen and one
end of a 1,500-foot net. The purse boats encircle the school and capture the
fish in the net. The fish are then pumped from the net into refrigerated holds
of the steamer, and then are unloaded at Omega Protein's processing plants.

Processing. During Fiscal 1998, Omega Protein owned and operated five
processing plants, three in Louisiana, one in Mississippi and one in Virginia,
where the menhaden are processed into fish meal, fish oil and fish solubles. The
fish are unloaded from the vessels into storage boxes and then conveyed into
steam cookers. The fish are then passed through presses to remove most of the
oil and water. The solid portions of the fish are dried and then ground into
fish meal. The liquid that is produced in the cooking and pressing operations
contains oil, water, dissolved protein and some fish solids. This liquid is
decanted to remove the solids and is then put through a centrifugal oil/water
separation process. The separated fish oil is a finished product. The separated
water and protein mixture is further processed through evaporators to remove the
soluble protein, which can be sold as a finished product or added to the solid
portions of the fish for processing into fish meal.

Fish meal, the principal product made from menhaden, is sold primarily
as a high-protein ingredient. It is used as a protein supplement in feed
formulated for pigs and other livestock. Each use requires certain standards to
be met regarding quality and protein content, which are determined by the
freshness of the fish and by processing conditions such as speed and
temperatures. Fish solubles are a liquid protein product used as an additive in
fish meal and also marketed as an independent product to animal feed formulators
and the fertilizer industry.

Fish oil from menhaden is widely used for human consumption as an
edible fat in Europe. Refined and hydrogenated menhaden oils have a wide variety
of applications as ingredients of margarine, cooking oil and solid cooking fats
used in baked goods. In June 1997, the U.S. Food and Drug Administration
approved the use of refined menhaden oil, a natural source of Omega-3 fatty
acids, for human consumption in the United States. Ongoing scientific studies
continue to link consumption of Omega-3-rich fish oil to a number of nutritional
and health benefits. Omega Protein is the only processor of refined menhaden oil
in the United States.

Marketing. Most of Omega Protein's marine protein products are sold
directly to about 300 customers by the Company's marketing department, while a
smaller amount is sold through independent sales agents. Total product inventory
was approximately $36.2 million as of September 30, 1998 versus $35.2 million on
September 30, 1997. While the fishing season usually extends from April into
December, sales from inventory continue throughout the year.

Omega Protein's fish meal is sold primarily to domestic feed producers
for utilization as a high-protein ingredient for the poultry, swine, aquaculture
and pet food industries. Fish oil sales primarily involve export markets where
the fish oil is refined for use as an edible oil. One customer for fish oil,
Denofa A/S, accounted for approximately 12.7% of Omega Protein's consolidated
revenues in Fiscal 1998. Sales to Denofa A/S were approximately $17.0 million in
1998.

Omega Protein's products are sold both in the U.S. and internationally.
International sales consist mainly of fish oil sales to Canada, Japan, Mexico
and The Netherlands. Omega Protein's sales in these foreign markets are

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denominated in U.S. dollars and are not directly affected by currency
fluctuations. Such sales, however, could be adversely affected by changes in
demand resulting from fluctuation in currency exchange rates.

A number of countries in which Omega Protein currently sells products
impose various tariffs and duties, none of which have a significant impact on
Omega Protein's foreign sales. These duties are being reduced annually under the
North American Free Trade Agreement in the case of Mexico and Canada and under
the Uruguay Round Agreement of the General Agreement on Trade and Tariffs in the
case of Japan. In all cases, Omega Protein's products are shipped to its
customers F.O.B. shipping point and, therefore, the customer is responsible for
any tariffs, duties or other levies imposed on Omega Protein's products sold
into these markets.

Insurance. Omega Protein maintains insurance against physical loss and
damage to its assets, coverage against liabilities to third parties it may incur
in the course of its operations, as well as workers' compensation, United States
Longshoremen and Harbor Workers' Act and Jones Act coverages. Assets are insured
at replacement cost, market value or assessed earning power. Omega Protein's
limits for liability coverage are statutory or $50.0 million. The $50.0 million
limit is comprised of several excess liability policies which are subject to
deductibles, underlying limits and exclusions. Omega Protein believes its
insurance coverage to be in such form, against such risks, for such amounts and
subject to such deductibles as are prudent and normal for its operations.

Competition. Omega Protein competes on price, quality and the
performance characteristics of its products, such as protein level and amino
acid profile in the case of fish meal. The principal competition for Omega
Protein's fish meal and fish solubles is from other protein sources such as
soybean meal and other vegetable or animal products. Omega Protein believes,
however, that these other sources are not complete substitutes because fish meal
offers nutritional values not contained in such sources. Vegetable fats and
oils, such as soybean and palm oils, provide the primary market competition for
fish oil. In addition, the Company competes against domestic, privately owned
menhaden fishing companies as well as domestic and international producers of
fish meal and fish oil derived from species such as anchovy and mackerel.

Fish meal prices generally bear a direct relationship to prevailing
soybean meal prices, while prices for fish oil are generally influenced by
prices for vegetable fats and oils, such as soybean and palm oils. Thus, the
prices for the Company's products are established by worldwide supply and demand
relationships over which the Company has no control and tend to fluctuate to a
significant extent over the course of a year and from year to year.

Regulation. Omega Protein's operations are subject to federal, state
and local laws and regulations relating to the location and periods in which
fishing may be conducted as well as environmental and safety matters. At the
state and local level, certain state and local government agencies have either
enacted legislation and regulations or have the authority to enact with
legislation and regulation to prohibit, restrict or regulate menhaden fishing
within their jurisdictional waters. Omega Protein, through its operation of
fishing vessels, is subject to the jurisdiction of the U.S. Coast Guard, the
National Transportation Safety Board and the U.S. Customs Service. The U.S.
Coast Guard and the National Transportation Safety Board set safety standards
and are authorized to investigate vessel accidents and recommend improved safety
standards. The U.S. Customs Service is authorized to inspect vessels at will.

Omega Protein's operations are also, subject to federal, state and
local laws and regulations relating to the protection of the environment,
including the federal Water Pollution Control Act of 1972, which was
significantly modified in 1977 to deal with toxic water pollutants and re-named
as the Clean Water Act, and which imposes strict controls against the discharge
of oil and other water pollutants into navigable waters. The Clean Water Act
provides penalties for any discharge of pollutants in reportable quantities and,
along with the Oil Pollution Act of 1990, imposes substantial liability for the
costs of oil removal, remediation and damages. Omega Protein's marine protein
operations also are subject to the federal Clean Air Act, as amended; the
federal Resource Conservation and Recovery Act, which regulates treatment,
storage and disposal of hazardous wastes; the federal Comprehensive
Environmental Response, Compensation, and Liability Act, which imposes
liability, without regard to fault, on certain classes of persons that
contributed to the release of any "hazardous substance" into the environment;
and the federal Occupational Safety and Health Act ("OSHA"). The OSHA hazard
communications standard, the Environmental Protection Agency community
right-to-know regulations under Title III of the federal Superfund Amendment and
Reauthorization Act and similar state statutes require Omega Protein to organize
information about hazardous materials used or produced in its operations.
Certain of this information must be provided to employees,

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state and local governmental authorities and local citizens. Numerous other
environmental laws and regulations, along with similar state laws, also apply to
the operations of Omega Protein, and all such laws and regulations are subject
to change.

Omega Protein has made, and anticipates that it will make in the
future, expenditures in the ordinary course of its business in connection with
environmental matters. Such expenditures have not been material in the past and
are not expected to be material in the future. There is no assurance, however,
that environmental laws and regulations enacted in the future will not adversely
affect Omega Protein's operations.

Omega Protein's harvesting operations are subject to certain federal
maritime laws and regulations which require, among other things, that Omega
Protein be incorporated under the laws of the U.S. or a state, Omega Protein's
chief executive officer be a U.S. citizen, no more of Omega Protein's directors
be non-citizens than a minority of the number necessary to constitute a quorum
and at least 50% of Omega Protein's outstanding capital stock (including a
majority of Omega Protein's voting capital stock) be owned by U.S. citizens. If
Omega Protein fails to observe any of these requirements, it will not be
eligible to conducts its harvesting activities in U.S. jurisdictional waters.
Such a loss of eligibility would have a material adverse affect on Omega
Protein's business, results of operations and financial condition.

Omega Protein has reported that it believes that it has substantially
complied during the past five years with all material statutes and regulations
applicable to its operations, the failure to comply with which would have a
material adverse impact on its operations.

Omega Protein is a publicly traded company which files registration
statements, reports and other items with the SEC. In addition to the information
included in this filing, other information about Omega Protein can be obtained
from, among other places, filings or press releases made from time to time by
Omega Protein. Zapata does not endorse or otherwise assume responsibility for
any of these other filings or press releases.

VISKASE COMPANIES, INC.

On June 12, 1998 and July 24, 1998, respectively, Viskase closed on the
sale of its Clear Shield and Sandusky subsidiaries and recognized a $35.5
million aggregate gain net of taxes on these sales. Following these
dispositions, Viskase retained its major interests in the food packaging
industry. Viskase's principal products include cellulosic casings used in the
preparation and packaging of processed meat products, heat shrinkable plastic
bags, and specialty films for packaging and preserving fresh and processed meat,
poultry and cheese products.

On August 27, 1998, Viskase's stockholders elected Zapata's Chairman of
the Board, Malcolm Glazer, and Chief Executive Officer, Avram Glazer, to
Viskase's Board of Directors pursuant to an agreement, dated July 9, 1998, among
Zapata, Viskase and the Glazers. Under the agreement, Zapata and the Glazers
agreed that until the earlier of one year from the date of the agreement or the
date on which Zapata owns more than 50% of Viskase's outstanding common shares,
to (1) cause all Viskase common shares beneficially owned by Zapata and the
Glazers to be voted for the director candidates nominated by Viskase's Board,
(2) refrain from assisting another person in their efforts to be elected to
Viskase's Board and (3) refrain from any action to change the membership of
Viskase's Board.

On September 4, 1998, Envirodyne's stockholders approved a change of
its corporate name to Viskase Companies, Inc. Effective September 8, 1998, the
common stock of Viskase began trading on the Nasdaq SmallCap market under its
new trading symbol "VCIC".

In October 1998, Viskase announced a reorganization of its worldwide
operations. The restructuring includes the elimination of its Chicago production
facility, elimination of a significant number of administrative positions
worldwide and the shutdown of certain foreign sales and distribution locations.
Overall these reductions affected approximately 350 employees or ten percent of
Viskase's worldwide work force. In addition, due to business conditions leading
to the Viskase plan of restructuring, the corporation evaluated the
recoverability of the long-lived assets including property, plant and equipment,
patents and excess reorganization value.

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In Viskase's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, Viskase reported that it had recorded an unusual one-time
charge of $148.6 million in connection with the restructuring of its worldwide
operations and the write-down of excess bankruptcy reorganization value. The
charge is primarily non-cash in nature. The charge includes $6.0 million for
cash severance and decommissioning and the balance from non-cash charges,
including $40.1 million for Chicago plant write-offs, $3.0 million for inventory
and maintenance store charges, $8.3 million related to shutdown of certain
foreign operations and a $91.2 million write-down of the corporation's excess
reorganization value. The excess reorganization value (which is similar to
goodwill) was established at the time of Viskase's bankruptcy reorganization in
1993. Due to the delayed reporting method followed by Zapata for Viskase's
financial results, Zapata's share of this loss will not be reported on Zapata's
financial statements until the first quarter of Fiscal 1999 when a pre-tax
charge of approximately $11.8 million will be recorded. The Company anticipates
that the Viskase investment will be recorded at a zero net book value in its
financial statements after its share of the unusual charge is recorded until the
Company's full share of the Viskase loss is recovered by Viskase. See Note 11 to
the Company's Consolidated Financial Statements included in Item 8 of this
Report.

Viskase is a publicly traded company which files registration
statements, report and other items with the Securities and Exchange Commission.
In addition to the information included in this filing, other information about
Viskase can be obtained from, among other places, filings or press releases made
from time to time by the corporation. Zapata does not endorse or otherwise
assume responsibility for any of these filings or press releases.

INTERNET BUSINESS

In April 1998, the Zapata Board adopted a plan to initiate a major
strategic thrust to acquire and consolidate internet and e-commerce businesses.
Zapata formed Zap Corporation, a Nevada corporation ("Zap"), to be the vehicle
for implementing this strategy. On April 27, 1998, Zapata acquired from ICON CMT
the assets used in connection with the operation of the Word and Charged on-line
Web magazines in consideration for the assumption of certain related liabilities
and obligations and nominal cash consideration. In connection with the
acquisition, Zapata and ICON CMT entered into a multi-year services agreement to
purchase no less than $2 million in communication and professional services over
the next four years (the "ICON Services Contract"). To date, the Company has
generated limited media revenues from selling advertisement space on Word and
Charged and has experienced operating losses in connection with the ongoing
operation of these media properties.

During the Summer of 1998, Zap entered into letters of intent for the
acquisition of, or investment in, 31 additional internet properties and
e-commerce businesses. Zapata also announced during this time period that it was
exploring a possible initial public offering or spin-off of Zap. In October 1998
Zapata decided not to proceed at that time with the then pending internet
acquisitions and other related transactions. This decision was largely based on
the volatility and uncertainty of the financial markets during the time of the
planned transactions. Management subsequently undertook a strategic review of
the Company's internet initiative

On December 22, 1998, Zapata announced that following completion of the
strategic review, it had determined to launch a new internet initiative that
would involve the development of an internet based brand name and a network of
websites. The Company plans to review a number of potential relationships as
part of this new initiative

EMPLOYEES

Zapata employed approximately 27 persons at September 30, 1998 and
considers its employee relations to be satisfactory. Approximately 22 of these
employees are dedicated to Word and Charged and the balance perform
administrative functions.

Omega Protein reported that it employed approximately 1,300 persons at
September 30, 1998 and that it considers its employee relations to be generally
satisfactory. Approximately 111 employees of Omega Protein are represented by an
affiliate of the United Food and Commercial Workers Union. Omega Protein has
further reported that, during the past five years, it has not experienced any
strike or work stoppage which has had a material impact on its operations.

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FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

Information concerning revenues, operating results (before net interest
expense, other income and income taxes), identifiable assets, depreciation,
depletion and amortization and capital expenditures for the Company's continuing
operations, by major division is incorporated herein by reference from Note 21
to the Company's Consolidated Financial Statements included in Item 8 of this
Report.

ITEM 2. PROPERTIES

The Company leases office space in Houston, Texas. A significant
portion of this space is subleased to Omega Protein for use as executive
offices. Zapata also leases approximately 3,444 square feet of office space in
Rochester, New York and approximately 200 square feet of office space in New
York City. The Company believes its administrative space is adequate for its
current needs. The Company maintains workers' compensation insurance as well as
liability and property insurance for all of its operations.

As of September 30, 1998, Omega Protein operated five processing
plants, which were located in Reedville, Virginia, Moss Point, Mississippi,
Abbeville, Louisiana, Morgan City, Louisiana and Cameron, Louisiana. These
plants had an aggregate capacity to process approximately 950,000 tons of fish
annually. Annual volume processed varies depending upon menhaden catch and
demand. Each plant maintains a dedicated dock to unload fish, fish processing
equipment and storage capacity. The Reedville facility contains an oil refining
plant and net making facility. Omega Protein periodically reviews possible
application of new processing technologies in order to enhance productivity and
reduce costs.

Omega Protein owns the Reedville, Moss Point and Abbeville plants and
the real estate on which they are located (except for a small leased parcel
comprising a portion of the Abbeville real estate). Omega Protein leases from
unaffiliated third parties the real estate on which the Cameron and Morgan City
plants are located. The Cameron plant lease provides for a 10 year term ending
on June 30, 2002 (with two successive 10 year options) and annual rent of
$56,000. The Morgan City plant lease provides for a five year term beginning on
November 25, 1997 at an annual rent of $220,000. Omega Protein has an option
under the Morgan City lease to purchase the plan for $656,000 during the last
month of the lease or earlier if all rent through the end of the term is paid.

In July 1997, Omega Protein commenced construction of a dry dock
facility in Moss Point, Mississippi to address the shortage of shoreside
maintenance in the U.S. Gulf coast and the increasing costs of these services.
The facility was completed in March 1998. Omega Protein is using this facility
and other outside facilities to perform routine maintenance to its fishing
fleet. Omega Protein provides shoreside maintenance services to third party
vessels if excess capacity exists.

ITEM 3. LEGAL PROCEEDINGS

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<PAGE> 11
relief including, among other things, rescission of the Company's purchase of
the shares of Viskase common stock from the Malcolm Glazer Trust, injunctive
relief to void the election of Messrs. Leffler and Loar as directors at the
Company's Annual Meeting of Stockholders held on July 27, 1995 and to enjoin
consummation of the Houlihan's Merger and any transaction in which Malcolm I.
Glazer has an interest; and an award of unspecified compensatory damages and
expenses, including attorneys' fees. Due to the inherent uncertainties in the
litigation process, it is not possible to predict the outcome of this lawsuit.
The Company, however, believes that the Harwin/Crandon Complaint is without
merit and is vigorously defending itself. The plaintiffs have taken no action
to prosecute this matter for over two years. It is the opinion of the Company's
management, based on discussions with counsel, that the probability of this
matter, when finally concluded, having a material adverse effect on the
results of operations, cash flows or financial position of the Company is more
than remote, but less than likely.

On November 9, 1995, a petition was filed in the 148th Judicial
District of Nueces County, Texas by Peter M. Holt, a former director of the
Company, and certain of his affiliates who sold their interests in Energy
Industries, Inc. and other natural gas compression companies ("Energy
Industries") to the Company in November 1993 (the "Holt Case"). The petition
names the Company, Malcolm I. Glazer and Avram A. Glazer as defendants and
alleges several causes of action based on alleged misrepresentations concerning
the Company's long-term development strategy focusing its efforts on the natural
gas services business. The petition does not allege a breach of any provision of
the purchase agreement pursuant to which the Company acquired Energy Industries
from the plaintiffs. The remedies sought by the plaintiffs include (1) the
disgorgement to the plaintiffs of the Company's profit made on its sale of
Energy Industries, plus the cash profit the Company made from the operations of
Energy Industries, which the plaintiffs contend equals approximately $54
million; (2) money damages based on the alleged lower value of the Company's
Common Stock had the alleged misrepresentations not been made, which the
plaintiffs contend is approximately $6 million; (3) money damages based on the
plaintiffs' assumptions that the Company's Common Stock price would have
increased if it had remained in the natural gas services industry after 1995,
which the plaintiffs contend equals approximately $23 million; or (4) money
damages based on the assumption that the plaintiffs had not sold Energy
Industries and had taken it public in January 1997, which the plaintiffs contend
amounts to more than $100 million. The Company, Malcolm I. Glazer and Avram A.
Glazer filed counterclaims against the plaintiffs for breach of the purchase
agreement, breach of fiduciary duty and/or material misrepresentations and
omissions by Mr. Holt. Trial is currently set for August 16, 1999. Due to the
uncertainties inherent in the litigation process, it is not possible to
predict the outcome of this lawsuit. The Company, however, believes that the
petition is without merit and is vigorously defending itself. In the opinion of
the Company's management, based on discussions with counsel, the probability
of the resolution of this matter having a material adverse effect on the
Company's results of operations, cash flows or financial position is more than
remote, but less than likely.

Between October 21, 1998 and December 4, 1998, 17 essentially
identical, purported securities class action lawsuits were filed against the
Company and certain of its current and former officers and directors. All of the
suits were filed in United States District Court for the Southern District of
Texas, Houston Division, and generally allege that the Company and current and
former members of its management violated Sections 10(a) and 20(a) of the
Securities Exchange Act of 1934 by making false and misleading statements
concerning the Company's business condition, strategy and future business
prospects with respect to various internet acquisitions, which allegedly
artificially inflated the price of the Company's Common Stock. The putative
class actions were commenced on behalf of persons who purchased the Company's
Common Stock between July 6, 1998 through October 15, 1998. The plaintiffs seek
unspecified monetary damages and their costs and expenses incurred in the
actions. The Company has not yet answered or otherwise responded to the
complaints and is seeking to have all of the pending actions consolidated. To
that end, each of the plaintiffs have stipulated to extend the Company's time

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<PAGE> 12
to answer or otherwise move with respect to the complaints until the Court
considers whether to consolidate all of the pending actions. If these actions
were determined adversely to the Company, such judgments could have a material
adverse effect on the Company's results of operations, cash flows and financial
position. The Company disputes the allegations in all the actions and intends to
defend itself vigorously in such actions.

On August 17, 1998, LFG, Inc. d/b/a Zap Futures ("LFG") commenced an
action against Zapata and its wholly-owned subsidiary, Zap Corporation in the
United States District Court for the Northern District of Illinois. LFG alleges
that the Company and Zap are quilty of trademark infringement, trademark
dilution and unfair competition under the federal Lanham Act and various
Illinois statutes. The action arises out of the use by the Company 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 internet Web
site. LFG seeks injunctive relief, unspecified compensatory damages, punitive
damages and an award of attorneys' fees. On August 21, 1998, LFG brought a
motion for a preliminary injunction, but a disposition of that motion has been
postponed pending a determination of a motion to dismiss for lack of personal
jurisdiction which the Company filed on September 2, 1998. The motion was argued
on November 25, 1998 and the Court has yet to decide the motion. Due to the
uncertainties inherent in the litigation process, it is not possible to predict
the outcome of this lawsuit. The Company, however, disputes the allegations made
in this action and is vigorously defending itself. It is the opinion of the
Company's management that the probability is remote that this matter, when
finally concluded, will have a material adverse effect on the results of
operations, cash flows or financial position of the Company. Future events and
circumstances, however, could alter management's belief.

From time to time, the Company is involved in litigation relating to
claims arising out of its operations in the normal course of its business. The
Company maintains insurance coverage against such potential ordinary course
claims in an amount which it believes to be adequate. While the results of any
ultimate resolution can not be predicted, in the opinion of the Company's
management, based on discussion with counsel, except for the matters described
above, the likelihood of uninsured losses having a material adverse effect on
Zapata's results of operations, cash flows or financial position is remote.

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

No matter was submitted to a vote of Zapata's stockholders during the
fourth quarter of Fiscal 1998.

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<PAGE> 13

PART II

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

Zapata's Common Stock is listed on the New York Stock Exchange. The
high and low sales prices for the Common Stock, as reported in the consolidated
transactions reporting system, for each quarterly period for the last two Fiscal
years, as well as the amounts per share of dividends declared during such
periods, are shown in the following table.

<TABLE>
<CAPTION>
9/30/98 6/30/98 3/31/98 12/31/97 9/30/97 6/30/97 3/31/97 12/31/96
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High sales price $22.81 $15.38 $14.38 $ 7.75 $ 8.25 $ 5.00 $ 5.00 $ 4.38
Low sales price $ 9.63 $ 9.31 $ 6.31 $ 6.63 4.63 4.00 4.00 3.38
Dividends declared $ 0.07 0.07 $ 0.07 $ 0.07 0.07 -- -- --
</TABLE>

The Company announced in July 1997 that its Board of Directors had
determined to institute a quarterly cash dividend on its Common Stock in the
amount of $0.07 per share. The Company subsequently announced on November 3,
1998 that its Board of Directors had determined to discontinue the quarterly
dividend in anticipation of using the cash to repurchase stock in connection
with the 5 million share stock repurchase program announced on July 6, 1998. The
Company does not expect to declare dividends on its Common Stock in the
foreseeable future. In deciding whether to declare dividends, the Company's
Board of Directors will consider the Company's operating results, cash flow,
financial condition, capital requirements, general business condition and such
other factors as the Board deems relevant. The right to the holders of Common
Stock to receive dividends or other payments with respect thereto in the future
will be subject to the prior and superior rights of holders Zapata's Preferred
Stock and Preference Stock then outstanding.

On May 30, 1997 in a privately negotiated transaction, the Board of
Directors approved the repurchase of 6.7 million shares of Common Stock at a
price of $4.52 per share. On September 1, 1997, the Company redeemed all of the
outstanding shares of its $2 Noncumulative Convertible Preference Stock at a
redemption price of $80 per share.

On July 6, 1998 Zapata's Board of Directors approved a new stock
repurchase program pursuant to which Zapata may repurchase up to 5 million
additional shares of its own outstanding Common Stock from time to time. No time
limit has been placed on the duration of the program and no minimum number or
value of shares to be repurchased has been fixed. Subject to applicable
securities laws, shares may be repurchased from time to time in the open market
or private transactions. Purchases are subject to availability of shares at
prices deemed appropriate by the Zapata's management and other corporate
considerations. Repurchased shares will be held as treasury shares available for
general corporate purposes. To date, Zapata has not made any repurchases under
this program. Zapata reserves the right to discontinue the repurchase program at
any time.

As of November 30, 1998, there were approximately 7,051 holders of
record of Common Stock. This number does not include the stockholders for whom
shares are held in a "nominee" or "street" name.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain selected historic consolidated
financial information for the Company for the periods and as of the dates
presented and should be read in conjunction with the Company's Consolidated
Financial Statements and the related notes thereto included in Item 8 of this
Report and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in Item 7 of this Report. The Company's
financial statements were restated in Fiscal 1995 to reflect the Company's
natural gas compression and natural gas gathering, processing and marketing
operations as discontinued operations and again in Fiscal 1997 to reflect the
Company's oil and gas operations as a discontinued operation.

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<PAGE> 14

<TABLE>
<CAPTION>
1998(1)(2) 1997(3) 1996 1995 1994
---------- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues $133,555 $117,564 $ 93,609 $ 94,959 $ 96,614
Operating income (loss) 30,507 12,842 5,951(4) (9,878)(5) (3,322)
Income (loss) from continuing operations 69,960 7,412 598 (4,322) 22,361(6)
Per share income (loss) from continuing operations 3.04 0.27 0.02 (0.14) 0.70
Cash dividend paid 6,502 1,604 -- 1,153 1,566
Common Stock, dividends declared, per share 0.07 0.07 -- -- 0.07
CASH FLOW DATA:
Capital expenditures 21,851 8,541 4,010 5,574 3,738
</TABLE>

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital 188,234 $ 86,391 $104,780 $116,949 $156,044
Property and equipment, net 84,972 40,997 36,702 36,125 32,424
Assets of discontinued operations -- -- 6,473 106,167 119,630
Total assets 334,006 190,951 232,966 238,957 251,239
Current maturities of long-term debt 1,413 1,034 16,108 16,148 531
Long-term debt 11,408 11,294 18,159 37,468 52,581
Stockholders' equity 215,547 143,405 152,313 145,290 154,542
</TABLE>

- -------------------

(1) In November 1997, Omega Protein closed the American Protein Acquisition
and the Gulf Protein Acquisition. See Note 6 to the Company's
Consolidated Financial Statements included in Item 8 of this Report.

(2) Zapata's former wholly-owned subsidiary, Omega Protein, completed its
initial public offering on April 8, 1998 and listed its stock on the
NYSE. Income from continuing operations includes $86.7 million of
pre-tax gain on Zapata's sale of Omega Protein stock in the Offering
and a charge of approximately $5.0 million representing the minority
interest in Omega Protein's net income subsequent to the Offering. See
Note 1 to the Company's Consolidated Financial Statements in Item 8 of
this Report.

(3) In September 1997, Omega Protein closed the Venture Milling
Disposition. See Note 6 to the Company's Consolidated Financial
Statements included in Item 8 of this Report.

(4) Includes $2.1 million of merger costs that were expensed when the
proposed merger with Houlihan's Restaurant Group, Inc. was terminated.

(5) Includes a non-recurring charge of $12.3 million related to the
write-down of Omega Protein's assets to estimated fair value.

(6) Includes a $37.5 million pretax gain from the sale of 4.1 million
shares of Tidewater, Inc. common stock.

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<PAGE> 15

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

The following is a discussion of the Company's financial condition and
results of operations. This discussion should be read in conjunction with the
Company's Consolidated Financial Statements appearing under Item 8 of this
Report.

GENERAL

In late 1994 and early 1995, the Company began to develop a plan that
involved exiting the energy business. In Fiscal 1995, Zapata completed the sale
of its six natural gas producing properties in the Gulf of Mexico, representing
the Company's domestic oil and gas producing operations. Zapata received cash of
$4.0 million and recorded an $8.9 million receivable representing (1) a
production payment entitling Zapata to a share of revenues from certain
properties and (2) a share of future proceeds from a revenue sharing agreement.
In Fiscal 1996, Zapata recorded a $5.5 million write-down of the production
payment receivable due to a reduction of the estimated gas reserves associated
with the receivable as prepared by the purchaser's reserve engineers.

In Fiscal 1996, Zapata acquired approximately 40% of Viskase's
then-outstanding shares of Viskase common stock. Zapata's investment in Viskase
is accounted for using the equity method of accounting. This method requires
Zapata to record a proportionate share of Viskase's income or loss as equity in
income (loss) of unconsolidated affiliates. Since Viskase's financial statements
are not available to Zapata on a basis that would permit concurrent reporting,
Zapata reports its equity in Viskase's results of operations on a three month
delay basis. See Note 7 to the Consolidated Financial Statements included in
Item 8 to this Report.

In Fiscal 1996, Zapata sold its natural gas compression assets (the
"Energy Industries Sale") for approximately $131 million in cash resulting in a
gain net of taxes of approximately $12.6 million. In Fiscal 1996, Zapata also
sold its natural gas gathering and processing assets (the "Cimarron Sales") for
approximately $23.7 million resulting in a loss net of taxes of approximately
$3.0 million. The Company's financial statements were restated in Fiscal 1997 to
reflect the Company's oil and gas operations as a discontinued operation.

On July 11, 1997, Zapata completed the sale of its Bolivian oil and gas
interests to Tesoro Bolivia Petroleum Company ("Tesoro") for $18.8 million cash
and the assumption by Tesoro of certain liabilities (collectively, the "Bolivian
Sale"). The Bolivian Sale completed Zapata's exit from the oil and gas business.
[In connection with the Bolivian Sale, Zapata established a $4.0 million letter
of credit in favor of Tesoro as security against the possibility of a Bolivian
income tax liability incurred by Zapata as a result of the Bolivian Sale.
Zapata's obligations with respect to the letter of credit terminated on January
8, 1998. The Bolivian Sale resulted in a gain net of taxes of approximately $5.7
million.]

On September 16, 1997, Omega Protein's wholly-owned subsidiary, Venture
Milling, sold substantially all of its assets to an unrelated third party.
Venture Milling was primarily in the business of blending different animal
protein products (i.e., fish meal, blood meal and feather meal) for sale to
producers of feed for broilers and other animals with low nutritional
requirements. Venture Milling had annual revenues and operating income (loss) of
$32.0 million and $174,000, respectively, in Fiscal 1997, $17.5 million and
($122,000), respectively, in Fiscal 1996 and $8.1 million and ($115,000),
respectively, in Fiscal 1995. The Venture Milling Disposition resulted in a
pre-tax loss of $531,000 in Fiscal 1997 and did not have a material impact on
the Company's balance sheet since Venture Milling leased most of the assets
employed in its operations.

On November 3, 1997, Omega Protein acquired for $14.5 million in cash,
the fishing and processing assets of American Protein, Inc. ("American
Protein"), which operated 10 fishing vessels and a menhaden processing plan in
the Chesapeake Bay area (the "American Protein Acquisition"). American Protein's
facilities were located in close proximity to Omega Protein's Reedville,
Virginia facility. Shortly after closing this acquisition, Omega Protein closed
the American Protein plant and began integrating its assets into Omega Protein's
existing operations.

On November 25, 1997, Omega Protein purchased the fishing and
processing assets of Gulf Protein, Inc. ("Gulf Protein"), which includes six
fishing vessels, five spotter planes and the processing equipment at the Gulf
Protein plant located near Morgan City, Louisiana for $13.6 million in cash and
the assumption of $883,000 in long-term liabilities. In connection with the Gulf
Protein Acquisition, Omega Protein also entered into a five year lease

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<PAGE> 16

for the Gulf Protein plant at a $220,000 annual rental rate. Omega Protein is
currently upgrading this plant's processing capabilities so that it can
manufacture specialty meals. Omega Protein began operations at the Morgan City,
Louisiana plant at the start of the 1998 fishing season. The Gulf Protein
transaction has been accounted for as a purchase and, therefore, results of
operations for this operation have been included in Omega Proteins results from
the closing date.

On April 8, 1998, Omega Protein completed its initial public offering
of 8,500,000 shares of its common stock at a gross price of $16 per share. On
May 7, 1998, the Underwriters exercised their over-allotment option to acquire
1,275,000 additional shares at the same gross price. Of the 9,775,000 total
shares sold in the Offering, Zapata sold 5,175,000 shares and Omega Protein
issued and sold 4,600,000 shares. Immediately following the Offering, Zapata
owned 59.7% of Omega Protein's outstanding common stock. Following, the
Offering, Zapata reports Omega Proteins' results of operations on a consolidated
basis eliminating all inter-company transactions and a minority interest.

In connection with the Offering, Zapata received $76.6 million from the
sale of Omega Protein shares after deducting commissions and selling expenses.
Additionally, Omega Protein received $68.0 million from the issuance of shares
after deducting commissions and offering expenses. Omega Protein used a portion
of its net proceeds to repay Zapata approximately $33.3 million of inter-company
indebtedness and $2.1 million in bank debt. Neither Zapata nor Omega Protein
have used the balance of the net proceeds from the Offering. Pending use, Zapata
and Omega Protein has invested the net proceeds in certificates of deposit and
high quality commercial paper graded A2P2 or better. As a result of the
Offering, Zapata recorded a gain net of taxes of $55.3 million or $2.31 per
share (diluted).

LIQUIDITY AND CAPITAL RESOURCES

Zapata Corporation Consolidated Liquidity and Capital Resources

Prior to the Omega Protein Offering, Zapata, as the sole stockholder of
Omega Protein caused cash to be moved between the Company and Omega Protein as
each company had cash needs. As a result of the Offering, Zapata and Omega
Protein are now separate public companies and each entity's capital resources
and liquidity are legally independent of the other. The assets of Omega Protein
are now dedicated to its operations and are not expected to be readily available
for the general corporate purposes of Zapata. Accordingly, following the
Offering and until the Company acquires another operating company, it's primary
sources of additional cash will include existing cash and cash equivalent
balances, sales of equity securities, interest earned on cash equivalents and
dividends earned on equity securities. For the foreseeable future, the Company
does not expect to receive cash dividends on its holdings of Omega Protein
common stock or Viskase common stock.

Zapata's consolidated working capital totaled $188.2 million and $86.4
million as of September 30, 1998 and 1997 respectively. So as to be ready to
make acquisitions of operating business, substantially all of the Company's
consolidated cash and cash equivalent balances of $161.8 million (including
$49.8 million held by Omega Protein) as of September 30, 1998 were deposited
with three major banking institutions in interest-bearing accounts or invested
in high grade commercial paper rated A2P2 or better.

Net cash provided by operating activities increased to $13.0 million in
Fiscal 1998 compared to net cash used by operating activities of $1.6 million in
Fiscal 1997. This increased use was due primarily to Omega Protein's improved
operations.

Operating activities provided $.1 million more in Fiscal 1997 than in
Fiscal 1996. This was attributable to the improvement in Omega Protein's
operating results in Fiscal 1997, which was offset by an increase in Omega
Protein's inventory balances and the release of $4.0 million of restricted cash
investment associated with the Bolivian Sale letter of credit.

Investing activities consumed $47.7 million in Fiscal 1998 compared to
$11.6 million provided in the prior Fiscal year. This difference was due to the
Omega Protein Acquisitions and increased capital equipment expenditures by Omega
Protein during Fiscal 1998. Net cash provided by investing activities decreased
to $11.6 million in Fiscal 1997 from $117.9 million in Fiscal 1996. The decrease
in Fiscal 1997 was due to the $128.6 million in aggregate proceeds received

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<PAGE> 17
from the sale of the Company's natural gas operations in Fiscal 1996. Capital
expenditures also increased $4.5 million in Fiscal 1997 over the previous Fiscal
year due primarily to Omega Protein's construction of a dry dock facility.

Financing activities provided net cash of $140.9 million in Fiscal 1998
compared to net cash used of $54.0 million in Fiscal 1997 and $19.3 million in
Fiscal 1996. The increase was primarily due to the $144.5 million in net
proceeds received by Zapata and Omega Protein from the Offering in Fiscal 1998,
which was partially offset by a $6.5 million annual dividend commenced at the
end of Fiscal 1997. It was also partially due to Zapata's repurchase in Fiscal
1997 of approximately 6.7 million shares of Common Stock and 2,627 shares of the
Company's $2 preference stock for $30.2 million and repayment of its 10 1/4%
and 10 7/8% subordinated debentures, which had principal balances totaling
approximately $25.5 million. In Fiscal 1996, Zapata debt repayment included a
$3.2 million repayment of the Company's remaining indebtedness incurred in
connection with the purchase of Viskase common stock, a $4.8 million repayment
of Zapata's remaining indebtedness owed to Norex Drilling Ltd. and a $10.0
million net repayment of Omega Protein's revolving credit facility.

On July 6, 1998, Zapata's Board of Directors approved a new stock
repurchase program allowing Zapata to repurchase up to five million shares of
its common stock. See "Part II - Item 5 - Market For Registrant's Common Equity
and Related Stockholder Matters." As of December 15, 1998, Zapata had not
repurchased any shares pursuant to such authorization. To the extent that shares
are repurchased under the program, Zapata's liquidity and working capital will
be correspondingly reduced. Such reduction, however, will be partially offset by
the funds which would otherwise have been used by Zapata to pay its quarterly
dividend which was discontinued by the Zapata Board during November 1998.

At September 30, 1998, Zapata had $12.8 million in indebtedness,
essentially all of which was Omega Protein's indebtedness. Thus, except for the
ICON Services Contract of $2.0 million, Zapata currently has limited financial
obligations. See "Part I - Item 1 - Description of Business - Internet
Business." Zapata could incur significant additional capital commitments in
connection with its internet initiative or other acquisition or business
opportunities. In such event, Zapata may need to raise additional capital
through the issuance of equity or debt. There is no assurance, however, that
such capital will be available at the time, in the amounts necessary or with
terms satisfactory to Zapata.

Zapata believes that existing cash and cash equivalents will be
sufficient to meet Zapata's requirements (including any purchases made by Zapata
pursuant to its current stock repurchase program) at least through the end of
2000.

Omega Protein Corporation Liquidity and Capital Resources

During Fiscal 1997, Zapata contributed to the Omega Protein as equity
$41.9 million of inter-company debt owed to Zapata. As a result of the Offering,
Zapata and Omega Protein are now separate public companies and each entity's
capital resources and liquidity is legally independent of the other. The assets
of Zapata are now dedicated to its operations and are not expected to be readily
available for the general corporate purposes of Omega Protein. As a result, the
historical liquidity and capital resources of the Omega Protein may not be
indicative of the Omega Protein's future liquidity and capital resources.

Omega Protein's primary sources of liquidity and capital resources have
been cash flows from operations, borrowings from Zapata, bank credit facilities
and term loans from various lenders provided pursuant to the Title XI of the
Marine Act of 1936 ("Title XI"). These sources of cash flows have been offset by
cash used for capital expenditures (including acquisitions) and payment of
long-term debt. The Company expects to finance its future capital expenditures
in the future through internally generated cash flows and, if necessary, through
funds available from its credit facility and/or the Title IX facilities
described below.

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<PAGE> 18
Under a program offered through National Marine Fisheries Service
pursuant to Title XI, Omega Protein has the ability to secure loans through
lenders with terms generally ranging between 12 and 20 years at interest rates
between 6% and 8% per annum, which are enhanced with a government guaranty to
the lender for up to 80% of the financing. Omega Protein's current Title XI
borrowings are collateralized by liens on 14 fishing vessels and mortgages on
Omega Protein's Reedville, Virginia and Abbeville, Louisiana plants. In 1996,
Title XI borrowing was modified to permit use of proceeds from borrowings
obtained through this program for shoreside construction. Omega Protein is
currently authorized to receive up to $20.6 million in loans under this program.
To date, Omega Protein has used $15.0 million of these funds.

Omega Protein had an unrestricted cash balance of $49.8 million at
September 30, 1998, up $44.3 million from September 30, 1997. This increase was
due primarily to the completion of the Omega Protein Offering and to net cash
generated from operations in Fiscal 1998.

Investing activities used $48.7 million, $10.9 million and $4.0 million
in Fiscal 1998, Fiscal 1997 and Fiscal 1996, respectively. The higher Fiscal
1998 activities reflect the Omega Protein Acquisitions. Other than those
acquisitions, Omega Protein's investing activities consisted mainly of capital
expenditures for equipment purchases and replacements in all three Fiscal years.
Excluding acquisitions, Omega Protein has reported that it anticipates making
approximately $17.0 million of capital expenditures in Fiscal 1999, a
significant portion of which will be used to refurbish vessels and plant assets
and to acquire certain equipment.

Net financing activities provided $67.4 million during Fiscal 1998
compared with $3.5 million in Fiscal 1997 and $10.6 million used in net
financing activities in Fiscal 1996. The Fiscal 1998 increase is due primarily
the Omega Protein Offering which provided $68.0 million in cash. Financing
activities also provided $2.6 million pursuant to the Title XI financing
program. Omega Protein's net use of cash in Fiscal 1996 was attributable to
Omega Protein's repayment of $21.1 million on its revolving line of credit,
offset by borrowings of $11.1 million under its bank debt.

Omega Protein completed its initial public offering on April 8, 1998.
Subsequent to the Offering, the underwriters elected to exercise their
over-allotment options. These issuance's generated net proceeds for Omega
Protein of approximately $68.0 million (after deducting underwriting discounts
and commissions and offering expenses). Of these proceeds, Omega Protein used
approximately $33.3 million to repay indebtedness to Zapata and $2.1 million to
repay bank indebtedness. Of the $33.3 million indebtedness owed to Zapata, $28.1
million was incurred to fund the cash portion of the purchase price for the
Omega Protein Acquisitions and the balance was primarily incurred to pay Omega
Protein's federal income taxes. Omega Protein has invested the remaining net
proceeds in interest bearing accounts and high grade commercial paper pending
their use. Omega Protein has reported that it intends to use these proceeds to
fund possible acquisitions and other capital expenditures as well as for general
corporate purposes.

On August 11, 1998 Omega Protein entered into a $20.0 million revolving
credit agreement with SunTrust Bank, South Florida, N.A. (the "Omega Protein
Credit Facility") fulfilling the commitment letter dated December 30, 1997.
Under the Omega Protein Credit Facility, Omega Protein may make borrowings in a
principal amount not to exceed $20.0 million at any time. Borrowings under this
facility may be used for working capital and capital expenditures. Interest
accrues on borrowings that will be outstanding under the Credit Facility at
Omega Protein's election, either (i) the bank's prime rate less 75 basis points,
or (ii) LIBOR plus a margin based on Omega Protein's financial performance. The
Credit Facility is collateralized by all of the Omega Protein's trade
receivables, inventory and specific computer equipment. Omega Protein and its
subsidiaries are required to comply with certain financial covenants, including
maintenance of a minimum tangible net worth, debt to tangible net worth ratio,
funded debt to cash flow ratio and fixed charges ratio, and certain other
covenants. As of September 30, 1998, the Omega Protein had no borrowings
outstanding under the Omega Protein Credit Facility.

On September 17, 1998, Omega Protein's Board of Directors authorized a
program to repurchase up to 4 million shares of its issued and outstanding
common stock. No time limit has been placed on the duration of the program and
no minimum number or value of shares to be repurchased has been fixed. Subject
to applicable securities laws, Omega Protein may repurchase shares from time to
time in the open market or private transactions. Purchases are subject to
availability of shares at prices deemed appropriate by Omega Protein and other
corporate

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<PAGE> 19

considerations. Repurchased shares will be held as treasury shares available for
general corporate purposes. Omega Protein has reported that, to date, it has not
made any repurchases under this program and that it may discontinue the program
at any time.

Omega Protein has reported that it believes that the net proceeds from
the Omega Protein Offering, together with existing cash, cash equivalents,
short-term investments and funds available through its Credit Facility will be
sufficient to meet its working capital and capital expenditure requirements
through at least the end of 2000.

RESULTS OF OPERATIONS

Zapata Corporation Consolidated Results of Operation

Zapata's income from continuing operations increased in Fiscal 1998 as
compared to Fiscal 1997. Zapata reported income from continuing operations of
$70.0 million on revenues of $133.6 in Fiscal 1998 as compared to $7.4 million
on revenues of $117.6 million in Fiscal 1997. This increase was due to a $86.7
million pre-tax gain from Zapata's sale of Omega Protein's shares in the Omega
Protein Offering, a $17.7 million Omega Protein operating income increase and a
$1.7 million net interest income increase. These factors were partially offset
by a $2.2 increase in Zapata's administrative expenses and a $4.2 million
increase in equity losses from Zapata's 40% equity interest in Viskase. The
additional expenses were primarily attributable to internet related activities
(including terminated transactions and the operation of the Word and Charged
webzines).

Zapata's income from continuing operations increased in Fiscal 1997 as
compared to Fiscal 1996. Zapata reported income from continuing operations of
$7.4 million on revenues of $117.6 million in Fiscal 1997 versus income from
continuing operations of $598,000 on revenues of $93.6 million in Fiscal 1996.
Additionally, Zapata's operating income rose to $12.8 million in Fiscal 1997
from $6.0 million in Fiscal 1996 reflecting Omega Protein's improved operating
results which was partially offset by $2.1 million of merger costs that were
expensed in Fiscal 1996 when Zapata terminated an agreement relating to Zapata's
proposed merger agreement with Houlihan's. Zapata's administrative expenses
increased in Fiscal 1997 due primarily to costs related to defending and
concluding various legal matters as discussed in Note 17 to the Company's
Consolidated Financial Statements. Additional factors that contributed to the
increase in Zapata's Fiscal 1997 income from continuing operations included a
$1.5 million decrease in interest expense reflecting Zapata's lower level of
indebtedness and a reduction in equity losses from Zapata's 40% equity interest
in Viskase.

Zapata's Fiscal 1998 net income increased to approximately $70.0
million from $15.4 million for the previous Fiscal year. The increase resulted
from Zapata's improved income from continuing operations. Zapata's Fiscal 1997
net income improved $8.4 million from the Fiscal 1996 net income of $7.0
million. Zapata's net income included income from discontinued operations of
$8.0 million and $6.0 million in Fiscal 1997 and 1996, respectively. In Fiscal
1997, discontinued operations included the after-tax gain of $5.7 million from
the Bolivian Sale and net income of $2.3 million from the Zapata's discontinued
oil and gas operations. In Fiscal 1996, net income from discontinued operations
included an after-tax gain of $12.6 million from the Energy Industries Sale, a
$3.0 million after-tax loss from the Cimarron Sales and associated 1996
operations, and a $3.2 million net loss primarily from the Fiscal 1996
discontinued oil and gas operating activities.

Equity in Income (Loss) of Unconsolidated Affiliates.

To account for its Viskase holdings, Zapata recorded losses of $7.0
million, $2.8 million and $4.5 million for the twelve months ending June 30,
1998, 1997 and 1996, respectively. The Company's equity loss for Fiscal 1996
included its equity interest in Viskase for Viskase's twelve month period ending
June 27, 1996 prorated to its August 1995 acquisition. The 1996 equity loss was
offset by the cumulative effect of change in accounting principle of $719,000
(before taxes) that reversed the Company's equity loss as reported in the fourth
quarter of Fiscal 1995.

In the quarter ending September 24, 1998, Viskase incurred a net loss
of $119.6 million. Since Zapata reports its equity in Viskase's results of
operations on a three-month delayed basis, the impact of this loss will be
recorded in the first quarter of Fiscal 1999. However, because Zapata has not
guaranteed any of Viskase's obligations and is not committed to provide
financial support to Viskase, Zapata will only record its equity in Viskase's
loss for Viskase's quarter ended September 24, 1998 to the extent that it

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<PAGE> 20
reduces Zapata's net investment in Viskase to zero. Accordingly, Zapata will
record a loss of $11.8 million or $.50 per share (diluted). Zapata will resume
applying the equity method when its share of Viskase's net income equals the
share of net losses not recognized during the period the equity method was
suspended.

Net Interest Income

In Fiscal 1998, the net interest income increased approximately $1.7
million from the prior Fiscal year due primarily to the higher level of the
Company's cash and cash equivalent balances following the Omega Protein Offering
and lower average outstanding borrowings during Fiscal 1998. In Fiscal 1997,
Zapata's net interest income increased to $2.0 million from $678,000 in Fiscal
1996 reflecting the Company's lower level of indebtedness during Fiscal 1997.
Reflecting the reduction of Zapata's indebtedness and higher cash balances in
Fiscal 1996, the Company recorded net interest income of $678,000 in Fiscal 1996
as compared to net interest expense of $1.8 million in Fiscal 1995.

Other Expenses

Other expense of $176,000 in Fiscal 1997 included a $533,000 loss
related to the sale of the Company's protein blending operation and a $722,000
gain associated with the sale of certain real estate. Other expense of $892,000
in Fiscal 1996 included a $499,000 loss related to an investment in subordinated
debentures of Wherehouse Entertainment, Inc.

Taxes

Zapata's consolidated provisions for U.S. income tax for Fiscal 1998,
1997 and 1996 reflect expenses resulting from pretax income from consolidated
operations.

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<PAGE> 21
Omega Protein Corporation Results of Operation

The following table sets forth as a percentage of revenues, certain
items of Omega Protein's operations for each of the indicated periods:

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues................................. 100.0% 100.0% 100.0%
Cost of sales............................ 66.6 79.7 83.8
------ ------ ------
Gross profit............................. 33.4 20.3 16.2
Selling, general and administrative...... 4.9 4.8 5.0
------ ------ ------
Operating income......................... 28.5 15.5 11.2
Interest Expense......................... (0.1) (0.5) (1.1)
Other (expense) income................... (0.2) (1.1) (0.1)
------ ------ ------
Income before income taxes............... 28.2 13.9 10.0
(Provision) for income taxes............. (10.1) (5.0) (3.7)
------ ------ ------
Net income............................... 18.1 8.9 6.3
====== ====== ======
</TABLE>

Fiscal 1998-1997

Revenues. Fiscal 1998 revenues increased $16.0 million, or 13.6 % from
$117.6 million in Fiscal 1997 to $133.6 million in Fiscal 1998. The increase was
attributable to increased sales volumes of Omega Protein's specialty meals and
oil and an overall increase in the average selling price of all regular meal
products. Increased sales volumes were due to the Omega Protein Acquisitions and
additional new sales which were partially offset by the lost Venture Milling
revenues (which totaled approximately $32.0 million in Fiscal 1997). Average
selling prices for the Company's marine protein products continued increasing in
Fiscal 1998, reflecting Omega Protein's continuing emphasis on producing
value-added products. Prices for Omega Protein's fish meal and fish oil products
improved by 4% and 39% respectively in Fiscal 1998 as compared to Fiscal 1997.
During Fiscal 1998, the average per-ton price for fish meal increased to $523
and the average per-ton price for fish oil increased to $615. Sales volumes of
fish meal increased approximately 31% in Fiscal 1998 as compared to Fiscal 1997
sales. Sales volume of fish oil increased approximately 56% in Fiscal 1998 as
compared to Fiscal 1997 sales. The volume increases are primarily due to
increased inventory levels carried forward from Fiscal 1997 and increased
production due to the Omega Protein Acquisition.

Gross Profit. Gross profit increased $20.9 million, or 87.8%, from
$23.8 million in Fiscal 1997 to $44.7 million in Fiscal 1998, resulting from a
13.6% increase in revenues and an increase in gross profit margin from 20.3% to
33.4% in Fiscal 1998. Gross profit margins increased primarily due to an
increase in fish catch of 18.7% from the previous Fiscal year, combined with the
divestiture of the high cost Venture Milling operations during late Fiscal 1997.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased $954,000, or 17.0% from $5.6 million in Fiscal
1997 to $6.6 million in Fiscal 1998. As a percentage of revenues, selling,
general and administrative expenses were approximately 5.0% in each of Fiscal
1997 and Fiscal 1998. The dollar increase was due primarily to an increase in
staffing to reflect Omega Protein's expanded emphasis on specialty meals and
oils.

Operating income. As a result of the factors discussed above, Omega
Protein's operating income increased to $38.1 million in Fiscal 1998 from $18.2
million in Fiscal 1997. As a percentage of revenues, operating income increased
from 15.5% in Fiscal 1997 to 28.5% in Fiscal 1998.

Interest expense. Interest expense declined $424,000 or 71.6% from
$592,000 in Fiscal 1997 to $168,000 in Fiscal 1998. This decline resulted from
Omega Protein's reduction in its average outstanding borrowings during Fiscal
1998 compared to the 1997 Fiscal year.

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<PAGE> 22
Other (expense) income. Other (expense) income decreased to ($291,000)
in Fiscal 1998 from ($1.3 million) in Fiscal 1997. Other expense decreased
primarily due to prior year losses in joint ventures, the sale of Venture
Milling's assets and the settlement of a lawsuit.

Income taxes. Omega Protein had the same 36.0% effective tax rate for
both Fiscal 1998 and Fiscal 1997. The effective tax rates approximate the
applicable combined state and federal statutory tax rates for the respective
periods.

Fiscal 1997-1996

Revenues. Fiscal 1997 revenues increased $24.0 million, or 25.6 % from
$93.6 million in Fiscal 1996 to $117.6 million in Fiscal 1997. Of this increase,
$14.5 million was attributable to increased sales by Venture Milling. The
balance of the increase was attributable to a 26.5% increase in the tons of
specialty grade fish meal sold and an overall increase in the average selling
priced of Omega Protein's products. These increases were offset by a 12.0%
decline in the tons of fish oil shipped in Fiscal 1997 due to inventory
carryover to the following Fiscal year in anticipation of higher prices, coupled
with Omega Protein's lower level of oil inventory carried over from the previous
Fiscal year. Excluding Venture Milling revenues, Omega Protein had revenues of
$76.1 million in Fiscal 1996 and $85.6 million in Fiscal 1997.

Gross Profit. Gross profit increased $8.6 million, or 56.8%, from $15.2
million in Fiscal 1996 to $23.8 million in Fiscal 1997. As a percentage of
revenues, Omega Protein's gross profit increased from 16.2% in Fiscal 1996 to
20.3% in Fiscal 1997. This increased percentage was primarily the result of
increasing sales of Omega Protein's higher margin specialty brand products.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased $923,000, or 19.7% from $4.7 million in Fiscal
1996 to $5.6 million in Fiscal 1997. As a percentage of revenues, selling,
general and administrative expenses were approximately 5.0% in each of Fiscal
1996 and Fiscal 1997. The dollar increase was primarily due to a one-time
contract payment to Omega Protein's former Chief Executive Officer who retired
during Fiscal 1997 and to severance expenses incurred in connection with the
reduction of Omega Protein's administrative staff during Fiscal 1997.

Operating income. As a result of the factors discussed above, Omega
Protein's operating income increased to $18.2 million in Fiscal 1997 from $10.5
million in Fiscal 1996. As a percentage of revenues, operating income increased
from 11.2% in Fiscal 1996 to 15.5% in Fiscal 1997.

Interest expense. Interest expense declined $403,000 or 40.5% from
$995,000 in Fiscal 1996 to $592,000 in Fiscal 1997. This decline resulted from
Omega Protein's reduction in its average outstanding borrowings during Fiscal
1997 compared to the 1996 Fiscal year.

Other (expense) income. Other (expense) income increased to ($1.3
million) in Fiscal 1997 from ($118,000) in Fiscal 1996. Other expense increased
primarily due to losses in joint ventures and the sale of Venture Milling's
assets.

Income taxes. Omega Protein recorded a $5.9 million provision for
income tax for Fiscal 1997 for a 36.0% effective tax rate in comparison to a
$3.5 million provision, representing a 36.8% effective tax rate for Fiscal 1996.
The effective tax rates approximate the applicable combined state and federal
statutory tax rates for the respective periods.

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<PAGE> 23
Seasonality and Quarterly Results.

Omega Protein's menhaden harvesting and processing business is seasonal
in nature. Omega Protein generally has higher sales during the menhaden
harvesting season (which includes the third and fourth quarter of each Fiscal
year) due to increased product availability, but prices during the fishing
season tend to be lower than during the off-season. As a result, Omega Protein's
quarterly operating results have fluctuated in the past and may fluctuate in the
future. In addition, from time to time Omega Protein defers sales of inventory
based on worldwide prices for competing products that affect prices for Omega
Protein's products which may affect comparable period comparisons. Certain
quarterly financial data contained in Note 22 to the Company's Consolidated
Financial Statements included in Item 8 of this Report is incorporated herein by
reference.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") which is
effective for Fiscal years beginning after December 15, 1997. SFAS 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. It requires (a) classification of items of
other comprehensive income by their nature in a financial statement and (b)
display of the accumulated balance of other comprehensive income separate from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. The Company will adopt the provisions of the
statement in Fiscal 1999. The Company anticipates that implementing the
provisions of SFAS 130 will not have a significant impact on the Company's
existing operations.

In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, "Disclosure about Segments of an Enterprise and Related
Information" ("SFAS 131") which is effective for periods beginning after
December 15, 1997. SFAS 131 establishes standards for reporting information
about operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. This Statement
supersedes SFAS 14, Financial Reporting for Segments of a Business Enterprise,
but retains the requirement to report information about major customers. The
Company will adopt the provisions of the statement in Fiscal 1999. The Company
anticipates that implementing the provisions of SFAS 130 will not have a
significant impact on the Company's existing operations.

In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers Disclosures About Pensions and Other
Postretirement Benefits" ("FAS 132"), which is effective for Fiscal years
beginning after December 15, 1997. SFAS 132 significantly changes current
financial statement disclosure requirements from those that were requested under
SFAS 87, "Employers' Accounting for Pensions"; SFAS 88, "Employers Accounting
for Settlements and Curtailments of Defined Pension Plans and for Termination
Benefits"; and SFAS 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." SFAS 132 does not change the existing measurement or
recognition provisions of FASB Statement Nos. 87, 88 or 106. It requires that
additional information be disclosed regarding changes in benefit obligation and
fair values of plan assets, standardizes the disclosure requirements for
pensions and other postretirement benefits and presents them in one footnote,
and eliminates certain disclosures that are no longer considered useful. The
Company will adopt the provisions of the statement in Fiscal 1999. The Company
anticipates that implementing the provisions of SFAS 132 will not have a
significant impact on the Company's existing operations.

In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), which is effective for Fiscal years beginning after June
15, 1999. SFAS 133 establishes standards requiring all derivatives to be
recognized in the statement of financial position as either assets or
liabilities and measured at fair value. The Company will adopt the provisions of
the statement in Fiscal year 2000. The Company anticipates that implementing the
provisions of SFAS 133 will not have a significant impact on the Company's
existing operations.

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<PAGE> 24
YEAR 2000

The Year 2000 issue is the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Some computer
systems will be unable to interpret dates beyond the year 1999, which could
cause a system failure or other computer errors leading to disruptions in
operations.

In connection with the Omega Protein Offering, Zapata and Omega Protein
entered into an Administrative Services Agreement pursuant to which Omega
Protein performs a number of services for Zapata. In performing these services
Omega Protein employs a number of IT systems, including, without limitation,
computer networking systems, financial systems and other similar systems.

Omega Protein has reported that it is aware of the issues surrounding
the Year 2000 and the problems that may occur. In 1997, Omega Protein developed
a program for Year 2000 compliance. Since 1997, Omega Protein has converted most
of its computer information systems to enable proper processing of critical
management information systems ("MIS") related to the Year 200 issue and beyond.
Critical MIS systems consist of software programs such as the operating system,
spreadsheets, accounting and financial programs. To conform the remaining system
to be Year 2000 compliant requires a new purchasing application. Omega Protein
has selected a new purchasing system has been selected and implementation is
expected to be completed by April 1999. Testing methodology involved changing
the date on the systems being tested to be in the Year 2000 and then exercising
all relevant applications to verify Year 2000 compliance. The cost of Omega
Protein's conversion was immaterial and has been expensed. Omega Protein's
current estimates indicate that the costs of addressing potential problems are
not expected to have a material impact upon Omega Protein's financial position,
results of operations or cash flows in future periods. To date, the cost of
Omega Protein's Year 2000 compliance program (including, software conversion)
has been immaterial.

Omega Protein has reported that it continues to evaluate its
non-critical MIS systems and expects that they will be compliant prior to the
Year 2000. Non-critical MIS systems refer to embedded technology such as micro
controllers found in computers and other hardware systems that Omega Protein has
identified as non-critical MIS systems. Non-critical MIS systems are those that
would not cause a disruption in any harvesting or manufacturing application
involved in producing product.

Internal systems are not the only ones that may have a material effect
on Omega Protein. External relationships to Omega Protein such as vendors and
customers may also impact Omega Protein by their inability to deliver goods and
services required by Omega Protein to operate. Customers could impact Omega
Protein by their inability to operate, reducing the sale of product, or their
inability to pay Omega Protein for products purchased. Omega Protein has decided
to address this issue in Fiscal 1999 by identifying major vendors and customers
and sending surveys to discover their level of Year 2000 compliance. Major
vendors are defined as those that provide critical goods or services to Omega
Protein or those that provide critical components to Omega Protein (such as fuel
suppliers and financial institutions). Major customers are identified as those
customers that are at the greatest risk of being impacted by the Year 2000
problem (mainly large domestic and foreign industrial and commercial customers).
The projected completion date of system surveys of external parties in June 30,
1999. There can be no guarantee that the systems of other companies on which
Omega Protein's systems rely will be timely converted or that a failure to
convert by another company or that a conversion that is incompatible with Omega
Protein's systems, would not have a material adverse affect on Omega Protein.

At this point in time, Omega Protein has not engaged any firm, nor does
it plan to engage any firm, to perform an independent verification and
validation of Omega Protein's Year 2000 compliance. At present, Omega Protein
does not have a contingency plan in place to specifically cover the Year 2000
issues. However, Omega Protein's management continues to evaluate its systems
and expects that all of its systems will be compliant prior to the Year 2000.

Zapata is also in the process of developing a plan to acquire its own
hardware and software systems for its business and, prior to purchasing any such
hardware or software, it will assess whether such components will properly
recognize dates beyond December 31, 1999. Zapata does not anticipate that any
hardware or software that it will purchase or license will have material
problems in this regard as the Company will only purchase or license current
versions of hardware and software provided by major vendors. Likewise, Zapata
does not anticipate that

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<PAGE> 25
any material issues will arise with respect to Omega Protein in this regard
before Zapata has developed its own systems so that it may operate independently
of Omega Protein. If Zapata becomes concerned that Omega Protein is not Year
2000 compliant or has what Zapata believes to be inadequate programs to become
Year 2000 compliant prior to Zapata implementing its own computer networking,
financial and other systems, Zapata will accelerate its timetable for moving to
its own systems so as to reduce or eliminate its reliance on Omega Protein. In
such event, Zapata believes that is has adequate financial and other resources
to accomplish this plan.

With respect to non-IT systems containing embedded electronic circuits,
Zapata does not itself have any such systems.

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

The Company believes that its 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 the Company's other public reports and filings made with the SEC,
press releases and public statements made by authorized officers of the Company
from time to time and those risks and uncertainties set forth below.

1. Risk associated with the future results of Omega Protein's
performance, including Omega Proteins' dependence on menhaden as its single
natural resource, the effect on the prices for it's products caused by worldwide
supply and demand relationships for competing products, government regulations,
restrictions on foreign ownership required for it to maintain its fishing
licenses in U.S. jurisdictional waters, risk associated with it's attempts to
exploit the domestic market for omega-3 fatty acids, fluctuation of quarterly
results, and those other risks identified from time to time in Omega Protein's
registration statements, reports and other filings from time to time with the
SEC (including, but not limited to, those risks identified under the caption
"Significant Factions That May Affect Future Results" in Omega Protein's Annual
Report on Form 10-K and in press releases issued by Omega Protein from time to
time.

2. Risks associated with the future results of Viskase's performance,
which are subject to those risks identified from time to time in registration
statements, reports and other filings which it makes from time to time with the
SEC and in press releases that it issues.

3. Risks, expenses and uncertainties frequently encountered by
companies in their early stage of development, particularly companies entering
the new and rapidly evolving markets for internet products and services,
including the Web-based advertising market. Such risks include, without
limitation, the failure of the market to adopt the Web as an advertising medium,
potential reductions in market prices for Web-based advertising as a result of
competition or other factors, the failure to develop and extend brand
identification, the failure to develop new media properties, the inability of
the Company to maintain and increase levels of traffic on its media properties,
the development or acquisitions of equal or superior services or products by
competitors, the failure to adopt rapidly changing technologies, the failure of
the Web infrastructure to support growing demands with the necessary speed, data
capacity and security and timely developments of enabling products such as
high-speed modems for providing reliable Web access and services and improved
content, the inability to protect proprietary rights and the adoption of laws
and regulations which could dampen the growth of the Web generally and a
communication and commercial medium, the inability to manage growth and the
inability to hold and use various number values. There can be no assurance that
the Company will be successful in addressing these risks or any other problems
encountered in connection with its internet strategy.

As part of its internet strategy, the Company intends to enter into a
number of agreements, alliances and relationships with third parties. There can
be no assurance that the Company will be successful in identify and reaching
agreement with any third parties. If the Company is unable to conclude
relationships with third parties which will be necessary to operate its internet
business and to establish a network of high traffic Websites, it could have a
material adverse impact on the ability of the Company to achieve its internet
strategy.

As part of its potential business strategy, the Company may also
enter into one or more business combinations or other relationships with
companies providing services through the internet or otherwise engaged in
e-commerce. For example, during April 1998 the Company acquired the assets
related to the Web magazines "Word" and "Charged." There can be no assurance

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<PAGE> 26
that the Company will be successful in identifying and reaching mutually
agreeable terms with any additional candidates and their owners or that the
Company will be able to profitably manage businesses it acquires or successfully
integrate acquired businesses or implement other relationships which it
establishes without substantial costs, delays or other problems. Such
transactions are accompanied by a number of risks. Acquisitions are accompanied
by the difficulty of assimilating the operations and personnel of the acquired
companies and retaining key management to maximize the financial and strategic
position of the Company through the successful incorporation of acquired
technology or content and rights into the Company's products and media
properties, expenses associated with the acquisitions, additional expenses
associated with amortization of acquired intangible assets, the impairment of
new management personnel and potential unknown liabilities and unexpected
problems associated with businesses which are acquired or will be acquired
(including litigation). Further, the candidates which the Company will be
pursuing will generally have a limited operating history upon which an
evaluation of the Company can be based.

4. Risks associated with management's lack of operating experience in
owning and operating internet businesses. The Company's ability to successfully
implement its internet strategy will depend on the Company's ability to hire
experienced personnel. Competition for such personnel in the internet industry
is intense, and there can be no assurance that the Company will be able to
retain its key personnel or that it can attract, assimilate or retain other
highly qualified personnel in the future.

5. Risks associated with the fact that a significant portion of the
Company's assets consists of equity and other interests in its operating
companies. Significant investments in entities that are not majority owned by
the Company could subject the Company to the registration requirements of the
Investment Company Act of 1940 (the "Investment Company Act"). The Investment
Company Act requires registration of, and imposes substantial restrictions on,
certain companies that engage, or propose to engage, primarily in the business
of investing, reinvesting, owning, holding, or trading in securities, or that
fail certain statistical tests concerning a company's asset composition and
sources of income. The Company intends to actively participate in the management
of its operating companies, consistent with applicable laws, contractual
arrangements and other requirements. Accordingly, the Company believes that it
is primarily engaged in a business other than investing, reinvesting, owning,
holding or trading in securities. Further, the Company endeavors to ensure that
its holdings of investment securities constitutes less than 40 percent of its
total assets (excluding Government securities and cash) on an unconsolidated
basis. The Company intends to monitor and attempt to adjust the nature of its
interests in and involvement with operating companies in order to avoid
subjecting the Company to the registration requirements of the Investment
Company Act. There can be no assurance, however, that the Company's business
activities will not ultimately subject the Company to the Investment Company
Act. If the Company were required to register as an investment company under the
Investment Company Act, it would become subject to regulations that would have a
material adverse impact on its business.

6. Risks related to the Company's ability to address Year 2000
compliance and to develop information technology and management information
systems to support strategic goals while continuing to control costs and
expenses.

7. Risks related to the costs of defending litigation and the risk of
unanticipated material adverse outcomes in such litigation or any other
unfavorable outcomes or settlements. There can be no assurance that the Company
will prevail in any pending litigation and to the extent that the Company
sustains losses growing out of any pending litigation which are not presently
reserved or otherwise provided for or insured against, its business, results of
operation and financial condition could be adversely affected.

8. Risks related to future changes in accounting and reporting
practices of the Company and any of its equity investments which adversely
affect the Company's, results of operation, cash flows and financial condition.

ITEM 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not applicable.

-23-
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors,
Zapata Corporation:

In our opinion, the accompanying consolidated balance sheet of Zapata
Corporation (the "Company") as of September 30, 1998 and 1997 and the related
consolidated statements of operations and stockholders' equity and of cash
flows presents fairly, in all material respects, the financial position of the
Company and its subsidiaries at September 30, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1998 in conformity with generally accepted accounting
principles. 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 generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.

PricewaterhouseCoopers LLP

November 18, 1998

-24-
<PAGE> 28
ZAPATA CORPORATION

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
---- ----
ASSETS ($ IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................................... $ 161,804 $ 55,598
Restricted cash .............................................................. 337 4,337
Receivables, net ............................................................. 12,804 11,150
Inventories, net ............................................................. 40,784 38,448
Prepaid expenses and other current assets .................................... 1,871 2,414
------------ ------------

Total current assets .................................................... 217,600 111,947
------------ ------------
Investments and other assets:
Investments in unconsolidated affiliates ..................................... 11,914 19,033
Production payment and other receivables ..................................... 2,073 2,656
Deferred income taxes ........................................................ -- 1,787
Other assets ................................................................. 17,447 14,531
------------ ------------

Total investments and other assets ...................................... 31,434 38,007
Property and equipment, net ....................................................... 84,972 40,997
------------ ------------
Total assets ............................................................ $ 334,006 $ 190,951
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current maturities of long-term debt ......................................... $ 1,413 $ 1,034
Accounts payable ............................................................. 2,900 1,907
Accrued liabilities .......................................................... 25,053 22,615
------------ ------------
Total current liabilities ............................................... 29,366 25,556
------------ ------------
Long-term debt .................................................................... 11,408 11,294
------------ ------------
Other liabilities ................................................................. 14,599 10,696
------------ ------------
Commitments and contingencies
Minority interest ................................................................. 63,086 --
------------ ------------
Stockholders' equity:
Common Stock ($0.25 par), issued: 30,667,178 shares in 1998 and
29,579,978 shares in 1997..................................................... 7,665 7,395
Capital in excess of par value ............................................... 149,311 139,400
Reinvested earnings, from October 1, 1990 quasi-reorganization ............... 90,239 26,781
Treasury stock, at cost, 6,790,100 shares in 1998 and
6,675,100 shares in 1997..................................................... (31,668) (30,171)
------------ ------------
Total stockholders' equity .............................................. 215,547 143,405
------------ ------------
Total liabilities and stockholders' equity .............................. $ 334,006 $ 190,951
============ ============
</TABLE>

The accompanying notes are an integral part of the consolidated
financial statements.

-25-
<PAGE> 29
ZAPATA CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1998 1997 1996
---- ---- ----
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues ............................................................... $ 133,555 $ 117,564 $ 93,609
Expenses:
Operating ......................................................... 85,220 90,054 75,248
Depreciation and amortization ..................................... 5,506 3,744 3,252
Merger expenses ................................................... -- -- 2,066
Selling, general and administrative ............................... 12,322 10,924 7,092
--------- --------- ---------
103,048 104,722 87,658
--------- --------- ---------
Operating income (loss) ................................................ 30,507 12,842 5,951
--------- --------- ---------
Other income (expense):
Interest income ................................................... 5,970 4,278 4,427
Interest expense .................................................. (945) (2,247) (3,749)
Gain on sale of Omega Protein ..................................... 86,662 -- --
Equity in loss of unconsolidated affiliates ....................... (7,009) (2,845) (4,471)
Minority interest in net income of consolidated subsidiary ........ (4,965) -- --
Other ............................................................. (295) (176) (892)
--------- --------- ---------
79,418 (990) (4,685)
--------- --------- ---------
Income from continuing operations before income taxes .................. 109,925 11,852 1,266
Provision for income taxes ............................................. 39,965 4,440 668
--------- --------- ---------
Income from continuing operations ...................................... 69,960 7,412 598
--------- --------- ---------
Discontinued operations (Notes 3, 4, 5 and 6):
Income (loss) from discontinued operations, net of income taxes ... -- 2,332 (3,161)
Gain on disposition of discontinued operations, net of income taxes -- 5,681 9,118
--------- --------- ---------
-- 8,013 5,957
--------- --------- ---------
Income before cumulative effect of changes in accounting principle ..... 69,960 15,425 6,555
Cumulative effect of change in accounting principle, net of income taxes -- -- 467
--------- --------- ---------
Net income ............................................................. 69,960 15,425 7,022
Preferred and preference stock dividends ............................... -- 2 --
--------- --------- ---------
Net income to common stockholders ...................................... $ 69,960 $ 15,423 $ 7,022
========= ========= =========

Per share data (basic):
Income from continuing operations ................................. $ 3.04 $ 0.27 $ 0.02
Income from discontinued operations ............................... -- 0.29 0.20
Cumulative effect of change in accounting principle ............... -- -- 0.02
--------- --------- ---------
Net income per share (basic) ...................................... $ 3.04 $ 0.56 $ 0.24
========= ========= =========
Average common shares outstanding ...................................... 23,043 27,303 29,549
========= ========= =========

Per share data (diluted):
Income from continuing operations ................................. $ 2.94 $ 0.27 $ 0.02
Income from discontinued operations ............................... -- 0.29 0.20
Cumulative effect of change in accounting principle ............... -- -- 0.02
--------- --------- ---------
Net income per share (diluted) .................................... $ 2.94 $ 0.56 $ 0.24
========= ========= =========
Average common shares and common share equivalents outstanding ......... 23,759 27,550 29,565
========= ========= =========
</TABLE>

The accompanying notes are an integral part of the consolidated
financial statements.

-26-
<PAGE> 30
ZAPATA CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------
1998 1997 1996
---- ---- ----
($ IN THOUSANDS)
<S> <C> <C> <C>
Cash flow provided by (used in) operating activities:
Net income ................................................................. $ 69,960 $ 15,425 $ 7,022
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation, amortization and asset write-downs ....................... 6,385 3,744 8,729
Write-down of investment in subordinated debentures .................... -- -- 499
Cumulative effect of change in accounting principle, net of income taxes -- -- (467)
Discontinued operations net gain on sales of assets .................... -- (5,681) (9,118)
Gain on sales of Omega Protein stock and other assets................... (86,865) (219) --
Equity in loss of unconsolidated affiliates ............................ 7,009 2,845 4,471
Restricted cash investments ............................................ 4,000 (4,000) (337)
Changes in assets and liabilities:
Receivables ....................................................... (1,654) (1,963) 5,057
Inventories ....................................................... (2,336) (9,291) (3,614)
Accounts payable and accrued liabilities .......................... 7,334 (648) (2,145)
Deferred income taxes ............................................. 1,787 2,668 (1,917)
Other assets and liabilities ...................................... 7,358 (865) (2,978)
Decrease (increase) in net assets of discontinued operations ...... -- (3,587) (6,924)
--------- --------- ---------
Total adjustments ............................................. (56,982) (16,997) (8,744)
--------- --------- ---------
Net cash provided by (used in) operating activities ........... 12,978 (1,572) (1,722)
--------- --------- ---------

Cash flow provided by (used in ) investing activities:
Proceeds from disposition of assets, net ................................... 1,006 19,513 128,969
Proceeds from notes receivable ............................................. 1,281 581 --
Investment in unconsolidated affiliates .................................... -- -- (7,032)
Asset acquisitions ......................................................... (28,116) -- --
Capital expenditures ....................................................... (21,851) (8,541) (4,010)
--------- --------- ---------
Net cash provided by (used in) investing activities ............... (47,680) 11,553 117,927
--------- --------- ---------

Cash flow provided by (used in) financing activities:
Proceeds from Omega Protein Corporation Initial Public Offering ............ 144,543 -- --
Proceeds from exercise of stock options .................................... 5,003 -- --
Borrowings ................................................................. 2,644 4,061 11,000
Principal payments of short- and long-term obligations ..................... (3,283) (26,071) (30,349)
Preferred and preference stock redemptions ................................. -- (199) --
Common stock repurchases ................................................... (1,497) (30,171) --
Dividend payments .......................................................... (6,502) (1,604) --
--------- --------- ---------
Net cash provided by (used in) financing activities ............... 140,908 (53,984) (19,349)
--------- --------- ---------

Net increase (decrease) in cash and cash equivalents ............................ 106,206 (44,003) 96,856
Cash and cash equivalents at beginning of year .................................. 55,598 99,601 2,745
--------- --------- ---------

Cash and cash equivalents at end of year ........................................ $ 161,804 $ 55,598 $ 99,601
========= ========= =========
</TABLE>

The accompanying notes are an integral part of the consolidated
financial statements.

-27-
<PAGE> 31
ZAPATA CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK APITAL IN INVESTMENTS
PREFERENCE ----------------- EXCESS OF REINVESTED IN EQUITY TREASURY
STOCK SHARES AMOUNT PAR VALUE EARNINGS SECURITIES STOCK
----- ----- ------ --------- -------- ----------- --------
($ IN THOUSANDS) ($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at September
30, 1995 .............. $ 3 29,548 $7,387 $131,962 $ 5,938 $ -- $ --
Net income .......... -- -- -- -- 7,022 -- --
Other ............... -- -- -- 1 -- -- --
----- ------ ------ -------- ------- -------- --------
Balance at September
30, 1996 ............. 3 29,548 7,387 131,963 12,960 -- --
Net Income .......... -- -- -- -- 15,425 -- --
Cash dividends
declared: .......... -- -- -- -- -- -- --
Common Stock ........ -- -- -- -- (1,602) -- --
Preference stock -- -- -- -- (2) -- --
Common Stock Buyback
(6.7 million shares) -- -- -- -- -- -- (30,171)
Preference stock
redemption ......... (3) -- -- (196) -- -- --
Resolution of pre-
quasi-reorganiza-
tion liability ..... -- -- -- 4,930 -- -- --
Reclassification of
deferred tax asset . -- -- -- 2,643 -- -- --
Other .............. -- 32 8 60 -- -- --
----- ------ ------ -------- ------ -------- -------

Balance at September
30, 1997 .............. -- 29,580 7,395 139,400 26,781 -- (30,171)
----- ------ -------- ------ -------- -------
Net income .......... -- -- -- -- 69,960 -- --
Cash dividends
declared ........... -- -- -- -- (6,502) -- --
Preferred stock
redemption ........ -- -- -- -- -- -- --
Common Stock buyback
(115,000 shares) .. -- -- -- -- -- -- 1,497)
Reverse unrealized gain
(net of taxes)......... -- -- -- -- -- -- --
Reclassification of
deferred tax asset....... -- -- -- 3,441 -- -- --
Exercise of stock options -- 1,102 270 6,470 -- -- --
----- ------ ------ -------- -------- -------- --------
Balance at September
30, 1998 ............... $ -- 30,682 $7,665 149,311 $ 90,239 $ -- $(31,668)
===== ====== ====== ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated
financial statements.

-28-
<PAGE> 32
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The financial statements include Zapata Corporation and its wholly and
majority-owned domestic and foreign subsidiaries (collectively, "Zapata" or the
"Company"). Investments in affiliated companies and joint ventures representing
a 20% to 50% voting interest are accounted for using the equity method, while
interests of less than 20% are accounted for using the cost method.
Additionally, prior year information and footnotes have been restated to reflect
the Company's oil and gas operations as a discontinued operation.

Zapata's principal business activities are its ownership interests in a
significant majority owned consolidated subsidiary, Omega Protein Corporation
("Omega Protein") (formerly known as Marine Genetics Corporation and Zapata
Protein, Inc.), which is publicly traded, and a significant equity investment in
another publicly traded corporation, Viskase Corporation ("Viskase") (formerly
known as Envirodyne Industries, Inc.). Omega Protein is engaged in the marine
protein business and its stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "OME." Viskase is engaged in the food packaging business and
its stock is traded in the over-the-counter market on the Nasdaq SmallCap Market
under the symbol "VCIC." Zapata also operates the internet based magazines Word
and Charged, and, as of the date of this Report, holds approximately $162
million (including approximately $50.0 million held by Omega Protein) investment
in certificates of deposit and high quality commercial paper graded A2P2 or
better.

Inventories

Omega Protein's fishing season runs from mid-April to the end of
October in the Gulf Coast and from the beginning of May to the end of December
in the Atlantic Coast. Government regulations preclude Omega Protein from
fishing during the off-seasons. During the off-seasons, Omega Protein incurs
costs (i.e., plant and vessel-related labor, utilities, rent and depreciation)
that are directly related to Omega Protein's infrastructure that will be used in
the upcoming fishing season. Costs that are incurred subsequent to a fish catch
are deferred until the next season and are included with inventory. Fishing
product inventories and materials, parts and supplies are stated at; the lower
of cost (average cost) or market.

Omega Protein's inventory cost system considers all costs, both
variable and fixed, associated with an annual fish catch and it processing.
Omega Protein's costing system allocates cost to inventory quantities on a per
unit basis as calculated by a formula that considers total estimated
inventoriable costs for a fishing season (including off-season costs) to total
estimated fish catch and the relative fair market value of the individual
products produced. Omega Protein adjusts the cost of sales, off-season costs and
inventory balances at the end of each quarter based on revised estimates of
total inventoriable costs and fish catch.

Investments in unconsolidated affiliates

In August 1995, Zapata acquired 4,189,298 common shares of Viskase,
representing 31% of the then outstanding common stock of Viskase. In June and
July 1996, Zapata purchased 1,688,006 additional shares of Viskase and, as a
result of these transactions, Zapata currently owns approximately 40% of the
outstanding shares of Viskase common stock. Zapata's investment in Viskase is
accounted for using the equity method of accounting.

Omega Protein initial public offering

On April 8, 1998, Omega Protein completed an initial public offering of
8,500,000 of its common stock at a gross price of $16.00 per share. On May 7,
1998, the Underwriters exercised their option to acquire 1,275,000 additional
shares at the same gross price (both transactions collectively, the "Offering").
Of the 9,775,000 total shares sold in the Offering, Omega Protein issued and
sold 4,600,000 shares and Zapata sold 5,175,000 shares.

-29-
<PAGE> 33
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Immediately following the Offering, Zapata owned approximately 59.7% of the
shares of Omega Protein's outstanding common stock. Following the Offering,
Zapata has accounted for its interest in Omega Protein on a consolidated basis
with the elimination of equity and earnings contributable to the minority
interest. Zapata recorded a pre-tax gain of $86.7 million as a result of the
Offering.

Investment in debentures

In May 1995, Zapata acquired $7,000,000 of 13% Wherehouse Entertainment
senior subordinated debentures due August 1, 2002 ("Wherehouse Debentures") for
$3,238,750 plus accrued interest. As of September 30, 1995, Zapata's investment
in the Wherehouse Debentures was written down to its estimated fair market value
of $910,000. The write-down was based on quoted prices of the Wherehouse
Debentures and the financial condition of Wherehouse Entertainment, Inc. which
was operating as a debtor in possession under Chapter 11 of the U.S. Bankruptcy
Code. As of September 30, 1996, Zapata's remaining investment was written down
to $411,000 based on proceeds received by the Company upon the disposition of
the investment in December 1996.

Property, equipment and depreciation

Property and equipment are recorded at cost except as adjusted by the
quasi-reorganization as of October 1, 1990. As a result of the
quasi-reorganization the carrying value of the assets utilized by Omega Protein
was reduced to estimated fair value as of October 1, 1990.

Depreciation of property and equipment is provided using the
straight-line method over the estimated useful lives of the assets. Estimated
useful lives of assets acquired new, determined as of the date of acquisition,
are as follows:

<TABLE>
<CAPTION>
USEFUL
LIVES
-----
(YEARS)
<S> <C>
Fishing vessels and fish processing plants.............. 15-20
Furniture and fixtures.................................. 3-10
</TABLE>

Replacements and major improvements are capitalized; maintenance and
repairs are charged to expense as incurred. Upon sale or retirement, the costs
and related accumulated depreciation are eliminated from the accounts. Any
resulting gains or losses are included in the statement of operations. The
Company periodically evaluates its long-lived assets for impairment if events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.

Revenue recognition

Omega Protein recognizes revenue for the sale of its product when title
to its products is transferred to the customer.

-30-
<PAGE> 34
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income taxes

The Company utilizes the liability method to account for income taxes.
This method requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of existing temporary differences between
the financial reporting and tax reporting basis of assets and liabilities, and
operating loss and tax credit carryforwards for tax purposes. Prior to the
completion of the Omega Protein Offering in April 1998, Omega Protein was
included in Zapata's consolidated U.S. federal income tax return and its income
tax effects reflect on a separate return basis for financial reporting basis.
Subject to this Offering, Omega Protein Files a separate income tax return for
itself and its wholly-owned subsidiaries.

Concentrations of credit risk

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and trade accounts
receivable. The Company's customer base generally remains consistent from year
to year. The Company performs ongoing credit evaluations of its customers and
generally does not require material collateral. The Company maintains reserves
for potential credit losses and such losses have historically been within
management expectations.

At September 30, 1998 and 1997, the Company had cash deposits
concentrated primarily at three major banks. In addition, the Company had
certificates of deposit and commercial quality grade A2P2 rated or better
securities paper with companies and financial institutions. As a result of the
foregoing, the Company believes that credit risk in such investments is minimal.

Earnings per share

In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"), which established
standards for computing and presenting earnings per share. The Company adopted
the statement on October 1, 1997. Basic earnings per share was computed by
dividing income by the weighted average number of common shares outstanding.
Diluted earnings per share was computed by dividing income by the sum of the
weighted average number of common shares outstanding and the effect of any
dilutive stock options. All prior periods have been restated in accordance with
SFAS No. 128.

Quasi-reorganization

In connection with the comprehensive restructuring accomplished in
1991, the Company implemented, for accounting purposes, a
"quasi-reorganization," an elective accounting procedure that permits a company
that has emerged from previous financial difficulty to restate its accounts and
establish a fresh start in an accounting sense. After implementation of the
accounting quasi-reorganization, the Company's assets and liabilities were
revalued and its deficit in reinvested earnings was charged to capital in excess
of par value. The Company effected the accounting quasi-reorganization as of
October 1, 1990. During Fiscal 1998 and 1997, the Company reclassified $3.4
million and $4.9 million, respectively, after-tax contingent liability to
capital in excess of par value as a result of the resolution of certain
liabilities that were established at the date of the quasi-reorganization.
Capital in excess of par value may be adjusted in the future as a result of the
resolution of remaining pre-quasi-reorganization liabilities.

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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Recently issued accounting standards

In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting

-31-
<PAGE> 35
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Comprehensive Income" ("SFAS 130"), which is effective for Fiscal years
beginning after December 15, 1997. SFAS 130 establishes standards for reporting
and display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial statements. It
requires (a) classification of items of other comprehensive income by their
nature in a financial statement and (b) display of the accumulated balance of
other comprehensive income separate from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. The
Company anticipates that implementing the provisions of SFAS 130 will not have a
significant impact on the Company's existing operations.

In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, "Disclosure about Segments of an Enterprise and Related
Information" ("SFAS 131"), which is effective for periods beginning after
December 15, 1997. The statement need not be applied to interim financial
statements in the initial year of its application. SFAS 131 establishes
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. This Statement supersedes SFAS 14, "Financial Reporting for Segments
of a Business Enterprise", but retains the requirement to report information
about major customers. The Company will adopt the provisions of the statement in
Fiscal 1999. The Company anticipates that implementing the provisions of SFAS
131 will not have a significant impact on the Company's existing operations.

In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers Disclosures About Pensions and Other
Postretirement Benefits" ("SFAS 132"), which is effective for Fiscal years
beginning after December 15, 1997. SFAS 132 significantly changes current
financial statement disclosure requirements from those that were required under
SFAS 87, "Employers' Accounting for Pensions"; SFAS 88, "Employers Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." SFAS 132 does not change the existing measurement
or recognition provisions of FASB Statement Nos. 87, 88 or 106. It requires that
additional information be disclosed regarding changes in benefit obligation and
fair values of plan assets, standardizes the disclosure requirements for
pensions and other postretirement benefits and presents them in one note to the
financial statements, and eliminates certain disclosures that are no longer
considered useful. The Company will adopt the provisions of the statement in
Fiscal 1999. The Company anticipates that implementing the provisions of SFAS
132 will not have a significant impact on the Company's existing operations.

In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities: ("SFAS 133"), which is effective for Fiscal years beginning after
June 15, 1999. SFAS 133 establishes standards requiring all derivatives to be
recognized in the statement of financial position as either assets or
liabilities and measured at fair value. The Company will adopt the provisions of
the statement in Fiscal 2000. The Company anticipates that implementing the
provisions of SFAS 133 will not have a significant impact on the Company's
existing operations.

Reclassificiation

During 1998, reclassification of prior year information has been made
to conform with the current year presentation. These reclassifications had no
effect on net income or stockholders' equity reported for prior periods.

Change of fiscal year

On December 21, 1998, the Company's Board of Directors adopted a
change in the Company's fiscal year from September 30 to December 31.
Accordingly, the Company's next fiscal year will end on December 31, 1998.

NOTE 2. CHANGE IN ACCOUNTING PRINCIPLE

Effective October 1, 1995, the Company changed its method of accounting
for its equity interest in Viskase. Since Viskase's financial statements are not
available to the Company on a basis that would permit concurrent reporting, the
Company began reporting its equity in Viskase's results of operations on a
three-month delayed basis . The Company's financial statements for the quarter
ended December 31, 1995 did not include the Company's equity interest in Viskase
for the corresponding period. The change reduced previously reported income from
continuing operations by $467,000 ($719,000 before tax), or $.02 per share, with
a corresponding cumulative effect for the change in accounting principle of
$467,000 in the quarter ended December 31, 1995.

-32-
<PAGE> 36
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table reflects on a pro forma basis the effect of
retroactively applying the new accounting principle (amounts in thousands,
except per share amounts):

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30, 1996
------------------
<S> <C>
Net income........................................................... $6,555
Net income per share................................................. $0.22
</TABLE>

Viskase's net loss reported in their Form 10-Q for the quarter ended
September 24, 1998, but not yet recorded in Zapata's financial results, is
$119.6 million, of which Zapata's interest is approximately $47.8 million.
Zapata will only record its equity in Viskase's loss for Viskase's quarter ended
September 24, 1998 to the extent that it reduces Zapata's net investment in
Viskase to zero. Accordingly, Zapata will record a pre-tax loss of $11.8 million
or $.50 per share (diluted). See Note 11 for quarter ended September 24, 1998
results.

NOTE 3. DISPOSITION OF DISCONTINUED OIL & GAS ASSETS

In September 1994, the Board of Directors determined that the Company
would undertake efforts to sell its U.S. natural gas producing properties. The
six properties in the Gulf of Mexico, representing Zapata's domestic oil and gas
producing operations, were sold during Fiscal 1995. Zapata received cash of $4.0
million and an $8.9 million production payment and other receivable. No gain or
loss was recorded from the sales in Fiscal 1995. During Fiscal 1996, the Company
recorded a $5.5 million write-down of the production payment receivable as a
result of a reduction in the estimated oil and gas reserves associated with the
production payment as prepared by the purchaser's reserve engineers.

On July 11, 1997, Zapata completed the sale of its Bolivian oil and gas
interests to Tesoro Bolivia Petroleum Company ("Tesoro") for $18.8 million cash
and the assumption by Tesoro of certain liabilities (collectively, the "Bolivian
Sale"). The Bolivian Sale completed Zapata's exit from the oil and gas business.
As a result, Zapata has restated its financial statements to reflect its oil and
gas operations as a discontinued operation. The terms of the Bolivian Sale were
determined by negotiations between Zapata and Tesoro, Zapata's co-venturer with
respect to the Bolivian operations. In connection with the Bolivian Sale, Zapata
established a $4.0 million letter of credit in favor of Tesoro as security
against the possibility of a Bolivian income tax liability incurred by Zapata as
a result of the Bolivian Sale. Zapata's obligations with respect to the letter
of credit terminated on January 8, 1998. The Bolivian Sale resulted in an
after-tax gain of approximately $5.7 million.

The consolidated financial statements were restated in Fiscal 1997 to
report the net assets and operating results of Zapata's oil and gas operations
as a discontinued operation. Summarized results of Zapata's oil and gas
discontinued operations are shown below (amounts in millions):

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
1997 1996
---- ----
<S> <C> <C>
FINANCIAL RESULTS
Revenue............................................................ $ 4.3 $ 2.1
Expenses........................................................... 0.7 6.9
------ ------
Income (loss) before taxes......................................... (4.8)
Income tax provision (benefit)..................................... 1.3 (1.7)
------ ------
Net income (loss)............................................ $ 2.3 $ (3.1)
====== ======
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
----
<S> <C>
FINANCIAL POSITION
Current Assets.................................................... $ 1.2
Property and equipment, net....................................... 5.5
-----
6.7
Current Liabilities............................................... .2
-----
Net book value............................................... $ 6.5
=====
</TABLE>

-33-

<PAGE> 37
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4. DISPOSITION OF DISCONTINUED NATURAL GAS COMPRESSION OPERATIONS

In late 1994 and early 1995, the Company began to develop a plan which
included the divestiture of most of the Company's remaining energy operations,
including its natural gas compression operations ("Energy Industries").

In September 1995, Zapata entered into an agreement (the "Purchase
Agreement") to sell the assets of Energy Industries to Weatherford Enterra, Inc.
and its wholly owned subsidiary, Enterra Compression Company (collectively,
"Weatherford Enterra"). Pursuant to the Purchase Agreement, Weatherford Enterra
purchased from the Company all of the assets of Energy Industries for
approximately $131.0 million in cash, and assumed certain liabilities of Energy
Industries. A portion of the proceeds from the sale was used to repay
indebtedness of Energy Industries totaling approximately $26.0 million and to
pay expenses of approximately $1.4 million incurred in connection with the sale.
The sale closed in December 1995 after receiving stockholder approval and
resulted in an after-tax gain of approximately $12.6 million.

Summarized results of the Energy Industries discontinued operations are
shown below (amounts in millions):

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
-------------
1996
<S> <C>
FINANCIAL RESULTS
Revenues.................................................................... $13.1
Expenses.................................................................... 13.0
-----
Income (loss) before taxes.................................................. 0.1
Income tax provision........................................................ 0.1
-----
Net income*............................................................. $ --
=====
</TABLE>

- ----------
* Net income includes allocations of interest expense on general corporate debt
of $260,000 in 1996. Interest expense was allocated to discontinued
operations based on a ratio of net assets to be sold to the sum of total net
assets of the Company plus general corporate debt.

NOTE 5. DISPOSITION OF DISCONTINUED NATURAL GAS GATHERING, PROCESSING AND
MARKETING OPERATIONS

During Fiscal 1995, the Company determined to dispose of its natural
gas gathering, processing and marketing operations, which were conducted through
a wholly owned subsidiary of the Company, Cimarron Gas Holding Company (together
with its subsidiaries, "Cimarron"). On April 9, 1996, Zapata sold substantially
all of the assets of Cimarron in two separate transactions with Conoco Inc.
("Conoco") and Enogex Products Corporation ("Enogex"); Conoco purchased certain
of the Texas-based assets and Enogex purchased certain of the Oklahoma-based
assets. The aggregate cash consideration paid by Conoco and Enogex totaled
approximately $23.0 million. Subsequently, the Company sold Cimarron's remaining
assets for an additional $700,000. A portion of the proceeds from the sales was
used to repay $1.0 million of Cimarron's debt and to pay approximately $1.8
million for expenses associated with such sales. The sales resulted in an
after-tax loss of approximately $3.0 million. Additionally, Cimarron recognized
an after-tax loss of approximately $500,000 from operations during Fiscal 1996.

Summarized results of Cimarron's discontinued operations are shown
below (amounts in millions):

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
1996
----
<S> <C>
FINANCIAL RESULTS
Revenues......................................................... $23.9
Expenses......................................................... 24.7
-----
Loss before taxes................................................ (0.8)
Income tax benefit............................................... (0.3)
-----
Net loss..................................................... $(0.5)
=====
</TABLE>

- ----------

-34-
<PAGE> 38
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6. OMEGA PROTEIN ASSET ACQUISITIONS AND DIVESTITURES

On November 3, 1997, Omega Protein acquired the fishing and processing
assets of America Protein, Inc. ("America Protein") which operated ten fishing
vessels and a menhaden processing plant in the Chesapeake Bay area, for $14.5
million in cash (the "American Protein Acquisition"). American Protein's
facilities were located in close proximity to Omega Protein's Reedville,
Virginia facility. Shortly after completing this transaction, Omega Protein
closed the American Protein processing plant and began integrating its assets
into Omega Protein's existing operations.

On November 25, 1997, Omega Protein purchased the fishing and
processing assets of Gulf Protein, Inc. ("Gulf Protein"), which included six
fishing vessels, five spotter plans and the processing equipment located at the
Gulf Protein plant near Morgan City, Louisiana, for $13.6 million in cash and
the assumption of $883,000 in liabilities (the "Gulf Protein Acquisition").
Omega Protein accounted for this acquisition as a purchase; thus, the results of
operations began being included in Omega Protein's Statement of Operations
beginning November 25, 1997. In connection with the Gulf Protein Acquisition,
Omega Protein also entered a five year lease for the Gulf Protein plant at a
$220,000 annual rental rate. Omega Protein is currently upgrading this plant's
processing capabilities so that it can manufacture specialty meals.

These acquisitions were financed by a $28.1 million intercompany loan
from Zapata. The interest rate on this loan was 8.5% and was repayable in
quarterly installments beginning May 1, 1998. The loan, which was to mature on
August 1, 2002, was prepare in May 1998 with a portion of the proceeds from the
Omega Protein Offering.

On September 16, 1997, Omega Protein's wholly-owned subsidiary, Venture
Milling Company, a Delaware corporation ("Venture Milling"), sold substantially
all of its assets to an unrelated third party (the "Venture Milling
Disposition"). Venture Milling was primarily in the business of blending
different animal protein products (i.e., fish meal, blood meal and feather meal
for sale to producers of feed for broilers and other animals with low
nutritional requirements). Omega Protein's net income for the 1997 and 1996
Fiscal years was not materially impacted by activity related to Venture Milling.
The Venture Milling Disposition resulted in a $531,000 pre-tax loss to Omega
Protein in the fourth quarter of Fiscal 1997 and did not have a material impact
on Omega Protein's balance sheet since Venture Milling leased most of the assets
employed in its operations.

NOTE 7. ACCOUNTS RECEIVABLE

Accounts receivable as of September 30, 1998 and 1997 are summarized as
follows:

<TABLE>
<CAPTION>
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Trade .............................. $ 9,503 $ 8,821
Insurance .......................... 522 795
Employee ........................... 115 95
Income tax ......................... 1,507 --
-------- --------
Other .............................. 1,349 1,615
-------- --------
12,996 11,326
Less allowance for doubtful accounts (192) (176)
-------- --------
$ 12,804 $ 11,150
======== ========
</TABLE>

-35-
<PAGE> 39
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8. INVENTORY

Inventory as of September 30, 1998 and 1997 is summarized as follows:

<TABLE>
<CAPTION>
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Fish meal .................. $ 19,478 $ 19,048
Fish oil ................... 12,269 12,746
Fish solubles............... 1,144 983
Off season cost ............ 3,329 2,420
Materials and supplies ..... 4,620 3,353
Other ...................... 46 --
Less oil inventory reserve.. (102) (102)
-------- --------
Total inventory ............ $ 40,784 $ 38,448
======== ========
</TABLE>

NOTE 9. OTHER ASSETS

Other assets as of September 30, 1998 and 1997 are summarized
as follows:

<TABLE>
<CAPTION>
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Fishing nets .................. $ 1,303 $1,309
Title XI loan origination fee.. 422 359
Property held for resale ...... -- 304
Deposits ...................... 116 116
Miscellaneous ................. 1,467 53
Prepaid pension cost .......... 14,139 12,390
------- ------
$17,447 14,531
======= ======
</TABLE>

NOTE 10. PROPERTY AND EQUIPMENT

Property and equipment as of September 30, 1998 and 1997 are summarized
as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Land ......................................... 5,349 3,967
Plant assets ................................. 52,077 38,310
Fishing vessels .............................. 59,088 30,101
Furniture and fixtures ....................... 2,848 2,196
Other ........................................ 7,769 2,304
-------- --------
126,331 76,878
Less accumulated depreciation and impairment.. (41,359) (35,881)
-------- --------
84,972 40,997
======== ========
</TABLE>

NOTE 11. UNCONSOLIDATED AFFILIATES

In August 1995, Zapata acquired 4,189,298 shares of Viskase common
stock, representing 31% of the then outstanding common stock of Viskase, for
$18.8 million from a trust controlled by Malcolm Glazer, Chairman of the Board
of Zapata and a then-director of Viskase. Zapata paid the purchase price by
issuing to the seller a subordinated promissory note bearing interest at prime
and maturing in August 1997, subject to prepayment at the Company's option. The
Company prepaid approximately $15.6 million on the promissory note in Fiscal
1995 and the remaining $3.2 million in Fiscal 1996. In June and July 1996,
Zapata purchased 1,688,006 additional shares of Viskase common stock in
brokerage and privately negotiated transactions for aggregate consideration of

-36-
<PAGE> 40
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

approximately $7.0 million. As a result of these transactions, Zapata currently
owns approximately 40% of the outstanding shares of Viskase common stock.

The difference between Zapata's share of Viskase's equity and Zapata's
recorded investment in Viskase is being amortized over 15 years. At September
30, 1998, the unamortized balance of this difference was $21.1 million. The
aggregate market value of Zapata's shares of Viskase's common stock as of
September 30, 1998 was $24.2 million based on the closing price of $4.13 per
publicly traded share on that date.

In Viskase's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, Viskase reported that it had incurred a net loss of $119.6
million, including an unusual charge of $148.6 million in connection with the
restructuring of its worldwide operations and the write-down of excess
reorganization value. The charge is primarily non-cash in nature. The charge
includes $6.0 million for cash severance and decommissioning and non-cash
charges including $40.1 million for Chicago plant write-offs, $3.0 million for
inventory and maintenance store charges, $8.3 million of charges related to
shutdown of certain foreign operations and $91.2 million write-down of the
corporations reorganization value. The excess reorganization value, which is
similar to goodwill, was established at the time of Viskase's reorganization in
1993.

Since Zapata reports its equity in Viskase's results of operations on a
three-month delayed basis, the impact of this loss will be recorded in the first
quarter of Fiscal 1999. Because Zapata has not guaranteed any obligations and is
not committed to provide any financial support to Viskase, Zapata will only
record its equity in Viskase's loss for Viskase's quarter ended September 24,
1998 to the extent that it reduces Zapata's net investment in Viskase to zero.
Accordingly, Zapata will record a pre-tax loss of $11.8 million or $.50 per
share (diluted). Zapata will resume recording its equity in Viskase's earnings
when its share of Viskase's net income equals the share of net losses not
recognized during the period the equity method was suspended. In addition, due
to Viskase's loss for their quarter ended September 24, 1998 resulting in a
shareholders' deficit position and Zapata's subsequent reduction of the value of
its investment in Viskase to zero, the Company will discontinue recording the
amortization of the excess of its equity in Viskase's net assets over its
investment.

Due to the significance of the Company's investment, the financial
position and results of operations of Viskase are summarized below. The
financial statement information presented below for Viskase is based upon its
annual and interim reports for the corresponding periods presented (in millions,
except per share amounts):

-37-
<PAGE> 41
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)

VISKASE COMPANIES, INC.

<TABLE>
<CAPTION>
JUNE 25, 1998 JUNE 26, 1997
------ ------
<S> <C> <C>
BALANCE SHEET
Current assets ...................................... $220.8 $216.0
Other ............................................... 147.9 165.2
Property and equipment, net ......................... 426.1 449.5
------ ------
Total assets .................................. $794.8 $830.7
====== ======

Current liabilities ................................. $322.0 $121.1
Long-term debt ...................................... 336.7 509.8
Deferred income taxes and other ..................... 64.1 106.9
Stockholders' equity ................................ 72.0 92.9
------ ------
Total liabilities and stockholders' equity .... $794.8 $830.7
====== ======
</TABLE>

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
---------------------------------------------
JUNE 25, 1998 JUNE 26, 1997 JUNE 27, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Income Statement
Revenues .................... $ 508.5 $ 636.9 $ 654.7
Loss before income taxes .... (44.0) (21.1) (26.3)
Net loss .................... (21.7) (10.6) (20.2)
Net loss per share .......... (1.37) (0.73) (1.47)
</TABLE>

A summary of equity in net income (loss) of and investments in
unconsolidated affiliates is shown below:

<TABLE>
<CAPTION>
INVESTMENTS
EQUITY IN AS OF
NET LOSS SEPTEMBER 30
-------- --------
(IN THOUSANDS)
<S> <C> <C>
1998
Viskase ................................. $ (7,009) $ 11,836
Omega Protein joint ventures ............ -- 78
-------- --------
$ (7,009) $ 11,914
======== ========
1997
Viskase ................................. $ (2,685) $ 18,845
Omega Protein joint ventures ............ (160) 188
-------- --------
$ (2,845) $ 19,033
======== ========
1996
Viskase ................................. $ (4,456) $ 21,530
Omega Protein joint venture ............. (15) 531
-------- --------
$ (4,471) $ 22,061
======== ========
</TABLE>

NOTE 12. DEBT

At September 30, 1998 and 1997, the Company's long-term debt consisted
solely of Omega Protein debt as shown below:

<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
U.S. government obligations (Title XI loan) collateralized by a first lien on
certain vessels and certain plant assets:

Amounts due in installments through 2011, interest from 6.63% to 8.25% .... $11,152 $ 8,678
Amounts due in installments through 2014, interest at Eurodollar rates plus
.45%; 6.14% and 6.17% at September 30, 1998 and 1997, respectively ..... 1,270 1,350
Term note due 2002, interest at prime or Eurodollar rates plus 1.75%; 8.5%
at September 30, 1997, collateralized by certain assets of the Company ..... -- 2,175
Other debt at 4% at September 30, 1998 and 1997 ................................. 100 125
------- -------
Total debt ...................................................................... 12,522 12,328
------- -------
Less current maturities ................................................... 1,114 1,034
------- -------
Long-term debt .................................................................. 11,408 11,294
======= =======
</TABLE>

At September 30, 1998 and 1997, the estimated fair value of Omega
Protein debt obligations approximated Omega Protein's book value.

In 1995, Omega Protein entered into a loan agreement with
Internationale Nederlanden (U.S.) Capital

-38-
<PAGE> 42
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)

Corporation ("ING Loan Agreement"). The ING Loan Agreement provided the Company
with a $15 million revolving credit facility that was due June 30, 1997. The ING
Loan Agreement was terminated in Fiscal 1997.

On May 12, 1998, Omega Protein closed on its Fiscal 1998 Title XI
application and received $2.6 million of additional Title XI borrowings for
qualified Title XI projects. Omega Protein is currently authorized to receive up
to $20.6 million in loans under the Title XI program. To date Omega Protein has
used $15.0 million of the authorized Title XI loans. At September 30, 1998,
Omega Protein was in compliance with all restrictive covenants contained in the
Title XI borrowing agreements. Under the most restrictive of these covenants,
Omega Protein was required to maintain a current ratio of at least 1.25:1 and
maintain a debt to equity ratio of not more than 2:1. Covenants also limit
capital expenditures and investments.

On August 11, 1998, Omega Protein entered into a two year $20.0 million
revolving credit agreement with SunTrust Bank, South Florida, N.A. (the "Credit
Facility") fulfilling the commitment letter dated December 30, 1997. Under the
Credit Facility Omega Protein may make borrowings in a principal amount not to
exceed $20.0 million at any time. Borrowings under this facility may be used for
working capital and capital expenditures. Interest accrues on borrowings that
will be outstanding under the Credit Facility at Omega Protein's election,
either (i) the bank's prime rate less 75 basis points, or (ii) LIBOR plus a
margin based on the Company's financial performance. The revolving credit
agreement requires payment of a per annum commitment fee of one-eighth of a
percent (0.125%), calculated on the basis of a 360-day year for the actual
number of days elapsed. The Credit Facility is collateralized by all of Omega
Protein trade receivables, inventory and specific computer equipment. Omega
Protein and its subsidiaries are required to comply with certain financial
covenants, including maintenance of a minimum tangible net worth, debt to
tangible net worth ratio, funded debt to cash flow ration and fixed charges
ratio, under the Credit Facility. As of September 30, 1998, Omega Protein had no
borrowings outstanding under the Credit Facility.

Annual maturities

The annual maturities of Omega Protein long-term debt for the five
years ending September 30, 2003 are as follows (in thousands):

NOTE 13. CASH FLOW AND EARNINGS PER SHARE INFORMATION

For purposes of the statement of cash flows, all highly liquid
investments with an original maturity of three months or less are considered to
be cash equivalents.

-39-
<PAGE> 43
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)

Net cash provided by operating activities reflects cash payments of
interest and income taxes.

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid during the Fiscal year for:
Interest ............................ $ 883 $ 2,700 $ 3,888
Income tax payments ................. 27,810 4,000 6,276
</TABLE>

During Fiscal 1997, Omega Protein completed the Venture Milling
Disposition for cash proceeds of $180,000. Cash of $1,128,000 was included in
the net assets acquired by the third party purchaser. Additionally, during
Fiscal 1997, Omega Protein sold various other assets for cash proceeds of
$177,000. The following summarizes these transactions:

<TABLE>
<S> <C>
Cash received by Omega Protein for sale of assets ........... $ 177,000
Cash received by Omega Protein for the sale of
various assets of Venture Milling ....................... 180,000
Cash included with Venture Milling's net assets sold ........ (1,128,000)
-----------
Proceeds from the sale of assets, net ....................... $ (771,000)
===========
</TABLE>

In connection with the sale of Energy Industries' and Cimarron's assets
during Fiscal 1996, Zapata retained certain assets and liabilities related to
those operations. As a result, the Company reclassified liabilities totaling
approximately $2.6 million from net assets of discontinued operations to
continuing operations. Additionally, a portion of the Energy Industries' asset
sale proceeds was paid directly to certain lenders to repay indebtedness
totaling approximately $26 million; the Company received net proceeds of $105
million from the sale.

The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share computations (in thousands except per
share data):

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------------------- -------------------------------- ---------------------------------

INCOME SHARES PER SHARE INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (NUMERATOR) AMOUNT (NUMERATOR) (NUMERATOR) AMOUNT (NUMERATOR) (NUMERATOR) AMOUNT
------- ------- ------ --------- --------- ------ --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income $69,960 $15,243 $7,022
------- ------- ----- ------- ------- ----- ------ ------- -----

Basic EPS
Net Income
to common
stockholders 69,960 23,043 $3.04 15,243 27,303 $0.56 7,022 29,549 $0.24

Effect of Dilutive
Stock Option
Grants 718 247 16
Diluted EPS
Net Income to
common stock-
holders $69,960 23,761 $2.94 $15,243 27,550 $0.56 $7,022 29,565 $0.24
======= ======= ===== ======= ======= ===== ====== ======= =====

</TABLE>

NOTE 14. ACCRUED LIABILITIES

Accrued liabilities as of September 30, 1998 and 1997 are summarized as
follows:

<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Salary and benefits ............................ 13,114 8,770
Insurance ...................................... 3,102 4,792
Taxes, other than income tax ................... 1,623 1,630
Trade creditors ................................ 1,375 2,707
Others ......................................... 5,839 4,716
------ ------
25,053 22,615
====== ======
</TABLE>

NOTE 15. PREFERRED, PREFERENCE AND COMMON STOCK

Preference stock

Zapata has authorized 18 million shares of preference stock issuable in
one or more series. Zapata

-40-
<PAGE> 44
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)

redeemed the balance of its outstanding preference stock in September 1997 at
the redemption price of $80 per share.

Common stock

Zapata has authorized 165 million shares of Common Stock, of which
23,877,078 were issued and outstanding at September 30, 1998.

On May 30, 1997, pursuant to a repurchase program, Zapata repurchased 6.7
million shares of Common Stock in a privately negotiated transaction at a price
of $4.52 per share, including commissions. As it is the Company's intent to use
these shares for general corporate purposes, such shares are reflected in the
financial statements as treasury stock, at cost. Prior to commencement of the
stock repurchase program, Malcolm I. Glazer informed the board of directors that
he did not intend to sell to the Company any of the approximately 10.4 million
shares of Common Stock beneficially owned by him (currently approximately 45.5%
of that outstanding) under the stock repurchase program. The Company entered
into an agreement with Malcolm I. Glazer under which he represented that he did
not intend to take any action or cause the Company to take any action to "go
private" or otherwise cause its Common Stock to cease to be publicly traded, and
that should that intent change in the future, no such transaction would be
undertaken (with certain exceptions) except on terms approved by a special
committee of independent directors and determined to be fair to the Company's
stockholders from a financial point of view by a nationally recognized
investment banking firm.

On July 6, 1998 Zapata's Board of Directors approved a new stock repurchase
program whereby Zapata may repurchase up to 5 million additional shares of its
own outstanding Common Stock from time to time. No time limit has been placed on
the duration of the program and no minimum number or value of shares to be
repurchased has been fixed. Subject to applicable securities laws, shares may be
repurchased from time to time in the open market or private transactions.
Purchases are subject to availability of shares at prices deemed appropriate by
the Zapata's management and other corporate considerations. Repurchased shares
will be held as treasury shares available for general corporate purposes. To
date, Zapata has not made any repurchases under this program. Zapata reserves
the right to discontinue the repurchase program at any time.

NOTE 16. INCOME TAXES

The Company utilizes the liability method to account for income taxes.
This method requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of existing temporary differences between
the financial reporting and tax reporting base of assets and liabilities, and
operating loss and tax credit carryforwards for tax purposes. Due to the
implementation of the quasi-reorganization as of October 1, 1990, the Company
was required to adjust capital in excess of par value for the recognition of
deductible temporary differences and credit carryforward items which existed at
the date of the quasi-reorganization. Future reductions, if any, in the deferred
tax valuation allowance relating to tax attributes that existed at the time of
the quasi-reorganization will also be allocated to capital in excess of par
value.

Zapata and its domestic subsidiaries [other than Omega Protein] file a
consolidated U.S. federal income tax return. The provision for income tax
expense (benefit) from continuing operations consisted of the following:

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
State ............... $ 1,325 $ 448 $ 348
U.S ................. 27,867 (2,863) 979
Deferred
State ............... 50 -- --
U.S ................. 10,723 6,855 (659)
------- ------- -------
$39,965 $ 4,440 $ 668
======= ======= =======
</TABLE>

Income tax expense (benefit) was allocated to operations as follows:

-41-
<PAGE> 45
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Continuing domestic operations ........................ $39,965 $ 4,440 $ 668
Discontinued operations ............................... -- 4,314 8,517
Cumulative effect of a change in accounting principle.. -- -- 252
------- ------- -------
Total ........................................ $39,965 $ 8,754 $ 9,437
======= ======= =======
</TABLE>

For federal income tax purposes, Zapata has $9.4 million of investment
tax credit carryforwards expiring in Fiscal 1999 through 2001, and $6.3 million
of alternative minimum tax credit carryforwards. Investment tax credits are
limited to a maximum of $5.5 million as a result of a change of ownership as
calculated for tax purposes. As a result of the change in ownership, the use of
the Company's tax credit carryforwards is limited to a maximum of $1.5 million
per year. Investment tax credit carryforwards are reflected in the balance sheet
as a reduction of deferred taxes using the flowthrough method.

The following table reconciles the income tax provisions for Fiscal
1998, 1997 and 1996 computed using the U.S. statutory rate of 35% to the
provisions from continuing operations as reflected in the financial statements.

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Taxes at statutory rate ............................ $ 38,474 $ 4,148 $ 443
Foreign sales corp exempt income ................... 1,738 -- --
Minority interest in earnings of subsidiaries ...... (907) -- --
Amortization of intangibles not deductible for tax.. -- 123 11
Other .............................................. (234) (279) (134)
State taxes, net of federal benefit ................ 894 448 348
-------- -------- --------
$ 39,965 $ 4,440 $ 668
======== ======== ========
</TABLE>

Temporary differences and tax credit carryforwards that gave rise to
significant portions of deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Asset write-downs and accruals not yet deductible.. $ 2,759 $ 3,173
Investment tax credit carryforwards ............... 9,441 10,999
Alternative minimum tax credit carryforwards ...... 6,331 6,331
Equity in loss of unconsolidated affiliates ....... 5,258 2,645
Other ............................................. 992 1,246
-------- --------
Total deferred tax assets ................... 24,781 24,394
Valuation allowance ............................... (14,656) (14,214)
-------- --------
Net deferred tax assets ..................... 12,125 10,180
-------- --------
Deferred tax liabilities:
Property and equipment ............................ (4,036) (2,723)
Pension ........................................... (4,907) (4,337)
Write up of subsidiary investment ................. 9,985 --
Other ............................................. (642) (1,333)
-------- --------
Total deferred tax (liabilities) ............ (19,570) (8,393)
-------- --------
Net deferred tax asset (liability) .......... $ (7,445) $ 1,787
======== ========
</TABLE>

A valuation allowance is provided to reduce the deferred tax assets to
a level which, more likely that not, will be realized. Primary factors
considered by management to determine the size of the allowance include the
estimated taxable income level for future years and the limitations on the use
of such carryforwards and expiration dates. The valuation allowance was
decreased by approximately $1.6 million in Fiscal 1998 reflecting changes in the
Company's anticipated utilization of investment tax credit carryforwards during
1998. An additional charge of $2.0 million was recorded to the reserve for the
equity in the losses of an unconsolidated subsidiary which cannot be utilized
until such time that the investment in this subsidiary is sold.

NOTE 17. COMMITMENTS AND CONTINGENCIES

Operating leases payable

-42-
<PAGE> 46
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)

Future minimum payments under non-cancelable operating lease
obligations aggregate $1,979,000, and for the five years ending September 30,
2003 are (in thousands):

Rental expenses for operating leases were $606,000, $754,000 and
$406,000 in Fiscal 1998, 1997 and 1996, respectively.

Litigation

On August 11, 1995, a derivative and class action was filed by Elly Harwin
against the Company and its then directors in the Court of Chancery of the State
of Delaware, New Castle County. On January 18, 1996, a second derivative action
was filed by Crandon Capital Partners against the Company and its directors in
the same court. On May 7, 1996, a third derivative action was filed by Elly
Harwin and Crandon Capital Partners against the Company and its directors in the
same court. These cases have since been consolidated into one case (the
"Harwin/Crandon Case"), by way of an amended, consolidated complaint (the
"Harwin/Crandon Complaint"). The Harwin/Crandon Complaint alleges that the
Company's directors engaged in conduct constituting breach of fiduciary duty and
waste of the Company's assets in connection with the Company's investment in
Viskase, in connection with the decision to shift the Company's business focus
from energy to food services, and in connection with a proposed (but
subsequently abandoned) merger of Houlihan's Restaurant Group, Inc. with a
wholly-owned subsidiary of the Company (the "Houlihan's Merger"). The
Harwin/Crandon Complaint alleges, among other things, that the purchase of
Envirodyne common stock from Malcolm I. Glazer's affiliate, The Malcolm Glazer
Trust, was a wrongful expenditure of the Company's funds and was designed to
permit Malcolm I. Glazer to obtain personal financial advantage to the detriment
of the Company. The Harwin/Crandon Complaint also alleges that the Company's
Board of Directors is controlled by Malcolm I. Glazer and that then director
George Loar (who is now deceased) lacked independence from Malcolm I. Glazer
because he was employed until his retirement by a corporation indirectly
controlled by Malcolm I. Glazer, that Mr. Leffler lacked such independence
because of his status as a paid consultant to Malcolm I. Glazer, that Avram A.
Glazer lacked such independence because of familial relationship and that then
director, Ronald Lassiter, lacked such independence by reason of an employment
or consulting relationship with the Company. The Harwin/Crandon Complaint seeks
relief including, among other things, rescission of the Company's purchase of
the shares of Envirodyne common stock from the Malcolm Glazer Trust; injunctive
relief to void the election of Messrs. Leffler and Loar as directors at the
Company's Annual Meeting of Stockholders held on July 27, 1995 and to enjoin
consummation of the Houlihan's Merger and any transaction in which Malcolm I.
Glazer has an interest; and an award of unspecified compensatory damages and
expenses, including attorneys' fees. Due to the uncertainties inherent in the
litigation process, it is not possible to predict the outcome of this lawsuit.
The Company, however, believes that the Complaint is without merit and is
vigorously defending itself. The plaintiffs have taken no action to prosecute
this matter for over two years. It is the opinion of the Company's management,
based on discussions with counsel, that the probability of this matter, when
finally concluded, having a material adverse effect on the Company's results
of operations, cash flows or financial position is more than remote, but less
than likely.

On November 9, 1995, a petition was filed in the 148th Judicial District of
Nueces County, Texas by Peter M. Holt, a former director of the Company, and
certain of his affiliates who sold their interests in Energy Industries, Inc.
and other natural gas compression companies ("Energy Industries") to the Company
in November 1993 (the "Holt Case"). The petition names the Company, Malcolm I.
Glazer and Avram A. Glazer as defendants and alleges several causes of action
based on alleged misrepresentations concerning the Company's long-term
development strategy focusing its efforts on the natural gas services business.
The petition does not allege a breach of any provision of the purchase agreement
pursuant to which the Company acquired Energy Industries from the plaintiffs.
The remedies sought by the plaintiffs include (i) the disgorgement to the
plaintiffs of the Company's profit made on its sale of Energy Industries, plus
the cash profit the Company made from the operations of Energy Industries, which
the plaintiffs contend equals approximately $54 million; (ii) money damages
based on the alleged lower value of the Company's Common Stock had the alleged
misrepresentations not been made, which the plaintiffs contend is approximately
$6 million; (iii) money damages based on the plaintiffs' assumptions that the
Company's Common Stock price would have increased if it had remained in the
natural gas services industry after 1995, which the plaintiffs contend equals
approximately $23 million; or (iv) money damages based on the assumption that
the plaintiffs had not sold Energy Industries and had taken it public in January
1997, which the plaintiffs contend amounts to more than $100 million. The
Company, Malcolm I. Glazer and Avram A. Glazer filed counterclaims against the
plaintiffs for breach of the purchase agreement, breach of fiduciary duty and/or
material misrepresentations and omissions by Mr. Holt. Trial is currently set
for August 16, 1999. Due to the uncertainties inherent in the litigation

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<PAGE> 47
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)

process, it is not possible to predict the outcome of this lawsuit. The Company,
however, believes that the petition is without merit and is vigorously defending
itself. It is the opinion of the Company's management, based on discussions with
counsel, that the probability of the resolution of this matter having a
material adverse effect on the Company's results of operations, cash flows or
financial position is more than remote, but less than likely.

Between October 21, 1998 and December 4, 1998, 17 essentially
identical, purported securities class action lawsuits were filed against the
Company and certain of its current and former officers and directors. All of the
suits were filed in United States District Court for the Southern District of
Texas, Houston Division, and generally allege that the Company and current and
former members of its management violated Sections 10(a) and 20(a) of the
Securities Exchange Act of 1934 by making false and misleading statements
concerning the Company's business condition, strategy and future business
prospects with respect to the various internet acquisitions, which allegedly
artificially inflated the price of the Company's Common Stock. The putative
class actions were commenced on behalf of persons who purchased the Company's
Common Stock during the period between July 6, 1998 through October 15, 1998.
The Plaintiffs seek unspecified monetary damages and their costs and expenses
incurred in the action. The Company has not yet answered or otherwise responded
to the Complaints and is seeking to consolidate all of the pending actions. To
that end, each of the plaintiffs have stipulated to extend the Company's time
to answer or otherwise move with respect to the complaints until the Court
considers whether to consolidate all of the pending actions. If these actions
were determined adversely to the Company, such judgments could have a material
adverse effect on the Company's financial position, results of operation and
cash flow. The Company disputes the allegations in all pending putative class
actions and intends to defend itself vigorously in such actions.

On August 17, 1998, LFG, Inc. d/b/a Zap Futures ("LFG") commenced an action
against Zapata and its wholly-owned subsidiary, Zap Corporation ("Zap") in the
United States District Court for the Northern District of Illinois. LFG alleges
that the Company and Zap are guilty of trademark infringement, trademark
dilution and unfair competition under the federal Lanham Act and various
Illinois statutes. The action arises out of the use by the Company 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 internet Web
site. LFG seeks injunctive relief, unspecified compensatory damages, punitive
damages and an award of attorneys' fees. On August 21, 1998, LFG brought a
motion for a preliminary injunction, but a disposition of that motion has been
postponed pending a determination of a motion to dismiss for lack of personal
jurisdiction which the Company filed on September 21, 1998. The motion was
argued on November 25, 1998 and the Court has yet to decide the motion. Due to
the uncertainties inherent in the litigation process, it is not possible to
predict the outcome of this lawsuit. The Company, however, disputes the
allegations made in this action and is vigorously defending itself. It is the
opinion of the Company's management, based on discussions with counsel, that
the possibility is remote that the matter, when finally concluded, will have a
material adverse effect on the results of operations, cash flows or financial
position of the Company. Future events and circumstances, however, could alter
management's belief.

From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of its business. The Company
maintains insurance coverage against such potential ordinary course claims in an
amount which it believes to be adequate. While the results of any ultimate
resolution can not be predicted, in the opinion of the Company's management,
based on discussions with counsel, except as for the matters described above,
the likelihood of uninsured losses, having a material adverse effect on Zapata's
results of operations, cash flows or financial position is remote

-44-
<PAGE> 48
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)

Environmental Matters

Omega Protein is subject to various possible claims and lawsuits
regarding environmental matters. Management believes that costs, if any, related
to these matters will not have a material adverse affect on the results of
operations, cash flows or financial position of Omega Protein.

NOTE 18. FINANCIAL INSTRUMENTS

Concentrations of Credit Risk

As indicated in the industry segment information which appears in Note
21, the market for Omega Protein's services and products is primarily related to
the marine protein operations whose customers consist primarily of domestic feed
producers. Omega Protein performs ongoing credit evaluations of its customers
and generally does not require material collateral. Omega Protein maintains
reserves for potential credit losses, and such losses have historically been
within management's expectations.

NOTE 19. BENEFIT PLANS

Qualified Defined Benefit Plans

Zapata has two noncontributory defined benefit pension plans
covering certain U.S. employees. Plan benefits are generally based on employees'
years of service and compensation level. All of the costs of these plans are
borne by Zapata. The plans have adopted an excess benefit formula integrated
with covered compensation. Participants are 100% vested in the accrued benefit
after five years of service.

Net pension credits for Fiscal 1998, 1997 and 1996 included the
following components:

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year ....... $ 550 $ 624 $ 610
Interest cost on projected benefit obligations ........ 2,613 2,578 2,430
Actual gain on plan assets ............................ (4,206) (7,583) (3,854)
Amortization of transition assets and other deferrals.. (706) 3,422 (462)
------- ------- -------
Net pension credit .......................... $(1,749) $ (959) $(1,276)
======= ======= =======
</TABLE>

The Company's funding policy is to make contributions as required by
applicable regulations. No contributions to the plans have been required since
1984. The plans' funded status and amounts recognized in the Company's balance
sheet at September 30, 1998 and 1997 are presented below:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Fair value of plan assets ..................................... $ 45,367 $ 48,247
Actuarial present value of benefit obligations:
Vested benefits ......................................... 37,628 34,093
Nonvested benefits ...................................... -- 360
-------- --------
Accumulated benefit obligation .......................... 37,628 34,453
Additional benefits based on projected salary increases.. 2,363 1,904
-------- --------
Projected benefit obligations ........................... 39,991 36,357
-------- --------
Excess of plan assets over projected benefit obligations ...... 5,376 11,890
Unrecognized transition asset ................................. (3,350) (4,187)
Unrecognized prior service cost ............................... 790 912
Unrecognized net loss ......................................... 11,323 3,775
-------- --------
Prepaid pension cost .......................................... $ 14,139 $ 12,390
======== ========
</TABLE>

The unrecognized transition asset at October 1, 1987, was $10.6
million, which is being amortized over 15 years. For 1997 and 1996, the
actuarial present value of the projected benefit obligation was based on a 4.75%
weighted average annual increase in salary levels and a 7.5% discount rate.
Pension plan assets are invested in cash, common and preferred stocks,
short-term investments and insurance contracts. The projected long-term rate of
return on plan assets was 9.0% in Fiscal 1998 and 1997. The unrecognized net
loss of $11.3 million at September 30, 1998 is expected to be reduced by future
returns on plan assets and through decreases in future net pension credits.

-45-
<PAGE> 49
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)

Supplemental Retirement Plan

Effective April 1, 1992, Zapata adopted a supplemental pension plan,
which provides supplemental retirement payments to senior executives of Zapata.
The amounts of such payments equal the difference between the amounts received
under the applicable pension plan, and the amounts that would otherwise be
received if pension plan payments were not reduced as the result of the
limitations upon compensation and benefits imposed by federal law. Effective
December 1994, the supplemental pension plan was frozen.

Net pension expense for Fiscal 1998, 1997 and 1996 included the
following components:

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year
Interest cost on projected benefit obligations ...... $ 66 $ 67 $ 67
Amortization of prior service cost .................. 1 -- --
---- ---- ----
Net pension expense .......................... $ 67 $ 67 $ 67
==== ==== ====
</TABLE>
No contributions to the plan have been required since the plan is
unfunded. For Fiscal 1998 and 1997 the actuarial present value of the projected
benefit obligation was based on a 7.5% discount rate. The plan's funded status
and amounts recognized in the Company's balance sheet at September 30, 1998 and
1997 are presented below:

<TABLE>
<CAPTION>
1998 1997
----- -----
(IN THOUSANDS)
<S> <C> <C>
Fair value of plan assets .................................... $ -- $ --
----- -----
Actuarial present value of benefit obligations:
Vested benefits ......................................... 954 931
Nonvested benefits ...................................... -- --
----- -----
Accumulated benefit obligation .......................... 954 931
Additional benefits based on projected salary increases.. -- --
----- -----
Projected benefit obligation ............................ 954 931
----- -----
Excess of projected benefit obligations over plan assets ..... (954) (931)
Unrecognized net loss ........................................ 168 --
Unrecognized prior service costs ............................. -- --
Additional minimum liability ................................. -- --
----- -----
Unfunded accrued liability ................................... $(786) $(931)
===== =====
</TABLE>

Qualified Defined Contribution Plan

The Company sponsors a defined contribution plan, the Zapata Profit
Sharing Plan (the "Profit Sharing Plan"), for certain eligible employees of the
Company. The Company's contributions are calculated based on employee
contributions and compensation. The Company's contribution to the Profit Sharing
Plan totaled $50,132, $527,292 and $429,588 in Fiscal 1998, 1997 and 1996,
respectively.

Stock Option Plans

Under the Company's 1981 Stock Incentive Plan (the "1981 Plan"),
options may be granted at prices equivalent to the market value of the Company's
Common Stock at the date of the grant. Options become exercisable in annual
installments equal to one-third of the shares covered by the grant beginning one
year from the grant date. Options not exercised in the period they become
exercisable may be carried forward and exercised in subsequent periods. During
1986, the Company amended and restated the 1981 Plan to provide for the award of
restricted shares of Common Stock. No shares of Common Stock are available for
further grants of stock options or awards of restricted stock under the 1981
Plan.

Zapata's Amended and Restated Special Incentive Plan (the "1987 Plan")
provides for the granting of stock options and the awarding of restricted stock.
Under the 1987 Plan, options may be granted at prices equivalent to the market
value of the Common Stock at the date of grant. Options become exercisable on
dates as determined by the Zapata Board's Compensation Committee, provided that
the earliest such date cannot occur before six months after the date of grant.
Unexercised options will expire on varying dates, up to a maximum of ten years
from the date of grant. The awards of restricted stock have a restriction period
of not less than six months and not more than five years. The 1987 Plan provided
for the issuance of up to 600,000 shares of the Common Stock. During 1992, the

-46-
<PAGE> 50
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)

stockholders approved an amendment to the 1987 Plan that provides for the
automatic grant of a nonqualified stock option to directors of Zapata who are
not employees of Zapata or any subsidiary of Zapata. At September 30, 1998,
stock options covering a total of 329,667 stock options had been exercised. No
shares of common stock are available for future stock options or other awards
under the Plan.

On December 6, 1990, the Company's stockholders approved another stock
option plan (the "1990 Plan"). The 1990 Plan provides for the granting of
nonqualified stock options to key employees of the Company. Under the 1990 Plan,
options may be granted by the Committee at prices equivalent to the market value
of the Common Stock on the date of grant. Options become exercisable in one or
more installments on such dates as the Committee may determine, provided that
such date cannot occur prior to the expiration of one year of continued
employment with the Company following the date of grant. Unexercised options
will expire on varying dates up to a maximum of ten years from the date of
grant. The 1990 Plan provides for the issuance of options to purchase up to
1,000,000 shares of Common Stock. At September 30, 1998, a total of 967,334
stock options had been exercised and a total of 32,666 shares of Common Stock
were reserved for stock options outstanding under the 1990 Plan. No shares of
common stock are available for future stock options or other awards under the
Plan.

On December 5, 1996, the Company's stockholders approved a new stock
option plan (the "1996 Plan"). The 1996 Plan provides for the granting of
nonqualified stock options to key employees of the Company. Under the 1996 Plan,
options may be granted by the Committee at prices equivalent to the market value
of the Common Stock on the date of grant. Options become exercisable in one or
more installments on such dates as the Committee may determine. Unexercised
options will expire on varying dates up to a maximum of ten years from the date
of grant. The 1996 Plan provides for the issuance of options to purchase up to
5,000,000 shares of Common Stock. At September 30, 1998, stock options covering
a total of 1,041,000 shares had been exercised and a total of 2,856,500 shares
of Common Stock were reserved for the future granting of stock options under the
1996 Plan.

The Company has granted stock options under the 1981 Plan, the 1987
Plan, the 1990 Plan and the 1996 Plan (collectively, the "Plans"). The Company
applies APB Opinion 25 and related Interpretations in accounting for the Plans.
In 1995, the FASB issued SFAS 123 which, if fully adopted by the Company, would
change the methods the Company applies in recognizing the cost of the Plans.
Adoption of the cost recognition provisions of SFAS 123 is optional and the
Company has decided not to elect these provisions of SFAS 123. However, pro
forma disclosures as if the Company adopted the cost recognition provisions of
SFAS 123 are presented below.

Under the Plans, the Company is authorized to issue shares of Common
Stock pursuant to "Awards" granted in various forms, including incentive stock
options (intended to qualify under Section 422 of the Internal Revenue Code of
1986, as amended), non-qualified stock options, and other similar stock-based
Awards. The Company granted stock options in Fiscal 1997 under the Plans in the
form of nonqualified stock options.

The Company did not grant any stock options in Fiscal 1998 to employees
and directors. It did grant such options in Fiscal 1997. The stock options
granted in Fiscal 1997 have contractual terms of 10 years. All of the options
granted to the employees and directors have an exercise price equal to the fair
market value of the stock at grant date. The options granted in Fiscal 1997 vest
ratably over three years beginning on the first anniversary of the date of
grant.

A summary of the status of the Company's stock options as of September
30, 1998 and 1997 and the changes during the year ended on these dates is
presented below:

<TABLE>
<CAPTION>
STOCK OPTIONS
------------------------------------------
1998 1997
------------------ ------------------
# SHARES WEIGHTED # SHARES WEIGHTED
OF AVERAGE OF AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICES OPTIONS PRICES
------- ------ ------- ------
<S> <C> <C> <C> <C>
Outstanding at beginning of year .... 2,330,300 $4.62 165,700 $ 4.13
Granted ............................. -- -- 2,223,500 4.62
Exercised ........................... 1,077,403 4.58 58,900 3.21
Forfeited ........................... -- -- -- --
Outstanding at end of year .......... 1,252,897 4.65 2,330,300 4.62
Exercisable at end of year .......... 1,252,897 4.65 100,133 4.72
</TABLE>

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<PAGE> 51
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)

The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for grants in Fiscal 1997: dividend yield of 6.06%,
risk-free interest rate of 6.54%, an expected life of options of 5 years and a
volatility of 37.9% for all grants. The weighted-average fair value of options
granted for Fiscal 1997 was $1.16 per share; no options were granted in Fiscal
1996.

Options outstanding and exercisable as of September 30, 1998 are
summarized below:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING CONTR. LIFE PRICE EXERCISABLE PRICE
- -------------- --------- ----- ----- --------- -----
<S> <C> <C> <C> <C> <C>
$3.13 to $4.63 1,202,897 8.76 $4.60 1,202,897 $4.60
$5.31 to $5.94 50,000 4.74 5.81 50,000 5.81
- -------------- --------- ----- ----- --------- -----
$3.13 to $5.94 1,252,897 8.60 $4.65 1,252,897 $4.65
========= =========

</TABLE>

If the compensation cost for the Company's stock-based compensation
plans had been determined consistent with SFAS 123, the Company's net income and
net income per common share for Fiscal 1998 and 1997 would approximate the pro
forma amounts presented below (amounts in thousands, except per share amounts):

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------- -------------------
AS PRO AS PRO
REPORTED FORMA REPORTED FORMA
-------- ----- -------- -----

<S> <C> <C> <C> <C>
SFAS 123 charge .............. $ -- $ 2,344 $ -- $ 195
Net income ................... 69,960 68,436 15,425 15,297
Basic net income per Common Share .. 3.04 2.97 0.56 0.56
</TABLE>

The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. SFAS 123 does not apply to awards granted prior to Fiscal
1996.

NOTE 20. RELATED PARTY TRANSACTIONS

In August 1995, Zapata acquired 4,189,298 shares of the outstanding
common stock of Viskase for $18.8 million from a trust controlled by Malcolm
Glazer, Chairman of the Board of Zapata and a then-director of Viskase. Zapata
paid the purchase price by issuing to the seller a subordinated promissory note
bearing interest at prime and maturing in August 1997, subject to prepayment at
the Company's option. The Company prepaid the balance of the promissory note in
December 1996.

During Fiscal 1996, Zapata and Houlihan's Restaurant Group, Inc.
("Houlihan's") entered into the Houlihan's Merger Agreement. In view of Malcolm
I. Glazer's significant ownership of common stock of both Zapata and Houlihan's,
the transaction was negotiated by representatives of special committees of the
respective boards of directors of both Zapata and Houlihan's. On October 8,
1996, Zapata terminated the Houlihan's Merger Agreement pursuant to a provision
of such agreement that gave either party the right to terminate the merger
agreement if the Houlihan's Merger was not consummated before October 1, 1996.
The termination followed a decision of the Court of the Chancery of Delaware
that an 80% supermajority vote of Zapata's stockholders was required for
approval of the proposed transaction. Zapata recorded $2.1 million of merger
expenses in connection with the proposed transaction.

Certain administrative services, including treasury and taxation
services, were provided to Omega Protein by Zapata and billed at their
approximate cost. During Fiscal 1997 and 1996, fees for these services totaled
$30,000 and $110,000, respectively. Omega Protein provided to Zapata payroll and
certain administrative services billed at their approximate cost. During Fiscal
1998, 1997 and 1996, fees for these services totaled $156,000, $30,000 and
$30,000, respectively. The cost of such services were based on the estimated
percentage of time that employees spend working on the other party's matters as
a percent of total time worked. Omega Protein's management deemed this
allocation method to be reasonable.

-48-
<PAGE> 52
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)

Upon completion of Omega Protein's Offering, Omega Protein and Zapata
entered into certain agreements that included the Separation, Sublease,
Registration Rights, Tax Indemnity and Administrative Services Agreements. The
Separation Agreement required Omega Protein to repay $33.3 million of
indebtedness and current payables owed by Omega Protein to Zapata
contemporaneously with the consummation of Omega Protein's Offering and
prohibits Zapata from competing with Omega Protein for a period of five years.
The Sublease Agreement provides for Omega Protein to lease its principal
corporate offices in Houston, Texas from Zapata and provides Omega Protein to
utilize certain shared office equipment for no additional charge. The
Registration Rights Agreement sets forth the rights and responsibilities of each
party concerning certain registration filings and provides for the sharing of
fees and expenses related to such filings. The Tax Indemnity Agreement requires
Omega Protein to be responsible for federal, state and local income taxes from
its operations and the Administrative Services Agreement allows Omega Protein to
provide certain administrative services to Zapata at Omega Protein's estimated
cost.

During 1997, Zapata forgave $41.9 million of intercompany debt and
Omega Protein recorded the amount as contributed capital.

NOTE 21. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION

Zapata's continuing business is comprised of one industry segment
operating in the U.S. Omega Protein's marine protein segment is engaged in
menhaden fishing for the production and sale of fish meal and fish oil. Export
sales of fish oil and fish meal were approximately $55.4 million, $21.5 million
and $20.9 million in Fiscal 1998, 1997 and 1996, respectively. Such sales were
made primarily to European markets. In 1997 and 1996 no sales to any one
customer exceeded 10% of consolidated sales. Based on Viskase's December 21,
1998 annual report, Viskase's operations are primarily in North/South America
and Europe. Viskase is a supplier of food packaging products and food service
supplies.

<TABLE>
<CAPTION>
AS OF OR FOR OPERATING
THE YEAR ENDED INCOME IDENTIFIABLE DEPRECIATION CAPITAL
SEPTEMBER 30, REVENUES (LOSS) ASSETS AMORTIZATION EXPENDITURES
--------- --------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1998
Omega Protein........... $ 133,555 $ 38,118 $ 193,421 $ 6,351 $ 21,540
Corporate............... -- (7,611) 140,585(3) 34 311
--------- --------- ----------- --------- ---------
$ 133,555 $ 30,507 $ 334,006 $ 6,385 $ 21,851
========= ========= =========== ========= =========
1997
Omega Protein........... $ 117,564 $ 18,205 $ 100,440 $ 3,692 $ 8,535
Corporate............... -- (5,363) 90,511(3) 52 6
--------- --------- ----------- --------- ---------
$ 117,564 $ 12,842 $ 190,951 $ 3,744 $ 8,541
========= ========= =========== ========= =========
1996
Omega Protein........... $ 93,609 $ 10,504 $ 86,969 $ 3,167 $ 4,009
Corporate............... -- (4,553)(1) 139,524(3) 85 1
--------- --------- ----------- --------- ---------
$ 93,609 $ 5,951 $ 226,493(2) $ 3,252 $ 4,010
========= ========= =========== ========= =========
</TABLE>

- ----------
(1) Includes $2.1 million of merger costs that were expensed when the proposed
merger with Houlihan's was terminated.

(2) Excludes net assets of discontinued operations of $6.5 million in Fiscal
1996.

(3) Includes Zapata's investment in Viskase.

The following table shows the geographical distribution of revenues
based on location of customers:

<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
REVENUES PERCENT REVENUES PERCENT REVENUES PERCENT
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
U.S. ........ $ 78,106 58.5% $ 96,071 81.7% $ 72,711 77.7%
Europe ...... 29,101 21.8 7,274 6.2 14,578 15.6
Canada ...... 8,729 6.5 6,381 5.4 1,896 2.0
Mexico ...... 4,214 3.2 3,223 2.7 1,246 1.3
Other ....... 13,405 10.00 4,615 4.0 3,178 3.4
-------- ------ -------- ------ -------- ------
Total ....... $133,555 100.0% $117,564 100.0% $ 93,609 100.0%
======== ====== ======== ====== ======== ======
</TABLE>

-49-
<PAGE> 53
ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)

NOTE 22. QUARTERLY FINANCIAL DATA (UNAUDITED)

CONSOLIDATED QUARTERLY INFORMATION

<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
FISCAL 1998 1997 1998 1998 1998 FULL YEAR
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues $ 29,503 $ 30,041 $ 31,488 $ 42,523 $ 133,555
Operating Income $ 8,182 $ 9,179 $ 9,242 $ 3,904 $ 30,507
Income from continuing operations $ 4,588 $ 6,470 $ 58,140 $ 762 $ 69,960
Income from discontinued operations $ -- $ -- $ -- $ -- $ --
Net Income $ 4,588 $ 6,470 $ 58,140 $ 762 $ 69,960

Per Share:
Basic
Income from continuing operations $ 0.20 $ 0.28 $ 2.52 $ 0.03 $ 3.04
Income from discontinued operations $ -- $ -- $ -- $ -- $ --
Net Income $ 0.20 $ 0.28 $ 2.52 $ 0.03 $ 3.04

Diluted
Income from continuing operations $ 0.19 $ 0.27 $ 2.40 $ 0.03 $ 2.94
Income from discontinued operations $ -- $ -- $ -- $ -- $ --
Net Income $ 0.19 $ 0.27 $ 2.40 $ 0.03 $ 2.94
</TABLE>

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
FISCAL 1997 1996 1997 1997 1997 FULL YEAR
----------- -------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues $25,623 $ 22,964 $ 31,025 $ 37,952 $ 117,564
Operating Income $ 3,162 $ 2,468 $ 4,952 $ 2,260 $ 12,842
Income from continuing operations $ 1,919 $ 2,349 $ 2,868 $ 276 $ 7,412
Income from discontinued operations $ 25 $ 343 $ 1,962 $ 5,683 $ 8,013
Net Income $ 1,944 $ 2,692 $ 4,830 $ 5,959 $ 15,425

Per Share:
Basic
Income from continuing operations $ 0.07 $ 0.08 $ 0.11 $ 0.01 $ 0.27
Income from discontinued operations $ -- $ 0.01 $ 0.07 $ 0.24 $ 0.29
Net Income $ 0.07 $ 0.09 $ 0.18 $ 0.25 $ 0.56

Diluted
Income from continuing operations $ 0.07 $ 0.08 $ 0.11 $ 0.01 $ 0.27
Income from discontinued operations $ -- $ 0.01 $ 0.07 $ 0.24 $ 0.29
Net Income $ 0.07 $ 0.09 $ 0.18 $ 0.25 $ 0.56
</TABLE>

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

Not applicable.

-50-
<PAGE> 54

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' definitive proxy statement relating to its
combined 1997-1998 Annual Meeting of Stockholders (the "1998 Proxy 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 1998 Proxy 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 1998 Proxy 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 1998 Proxy Statement in response to Item 404 of
Regulation S-K.

PART IV

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

(a) LIST OF DOCUMENTS FILED.

(1) FINANCIAL STATEMENTS

Consolidated financial statements, Zapata Corporation and subsidiary
companies --

Report of PricewaterhouseCoopers LLP, independent accountants
consolidated balance sheet September 30, 1997 and 1998 Consolidated
statement of operations for the years ended September 30, 1998, 1997
and 1996

Consolidated statement of cash flows for the years ended September 30,
1998, 1997 and 1996

Consolidated statement of stockholders' equity for the years ended
September 30, 1998, 1997 and 1996

Notes to consolidated financial statements

(2) EXHIBITS

The exhibit list attached to this report is incorporated herein in its
entirety by reference as if fully set forth herein.

The exhibits indicated by an asterisk (*) are incorporated by
reference.

-51-
<PAGE> 55

EXHIBIT NO.. DESCRIPTION OF EXHIBITS
- ------------ -----------------------

3(a)* Restated Certificate of Incorporation of Zapata filed with
Secretary of State of Delaware May 3, 1994 (Exhibit 3(a) to
Current Report on Form 8-K dated April 27, 1994 (File No.
1-4219)).

3(b)* Certificate of Designation, Preferences and Rights of $1
Preference Stock (Exhibit 3(c) to Zapata's Quarterly Report on
Form 10-Q for the Fiscal quarter ended March 31, 1993 (File
No. 1-4219)).

3(c)* Certificate of Designation, Preferences and Rights of $100
Preference Stock (Exhibit 3(d) to Zapata's Quarterly Report on
Form 10-Q for the Fiscal quarter ended March 31, 1993 (File
No. 1-4219)).

3(d)* By-laws of Zapata, as amended effective November 11, 1996, are
incorporated herein by reference to Exhibit 3(b) to Zapata's
report on Form 10-K for the Fiscal year ended September 30,
1996. Certain instruments respecting long-term debt of Zapata
and its subsidiaries have been omitted pursuant to Regulation
S-K, Item 601. Zapata hereby agrees to furnish a copy of any
such instrument to the Commission upon request.

10(a)*+ Zapata 1990 Stock Option Plan (Exhibit 10(b) to Zapata's
Annual Report on Form 10-K for the Fiscal year ended September
30, 1990 (File No. 1-4219)).

10(b)*+ First Amendment to Zapata 1990 Stock Option Plan (Exhibit
10(c) to Zapata's Registration Statement on Form S-1
(Registration No. 33-40286)).

10(c)*+ Zapata Special Incentive Plan, as amended and restated
effective February 6, 1992 (Exhibit 10(a) to Zapata's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1992 (File No. 1-4219)).

10(d)*+ Zapata 1981 Stock Incentive Plan, as amended and restated
effective February 12, 1986 (Exhibit 19(a) to Zapata's
Quarterly Report on Form 10-Q for the Fiscal quarter ended
March 31, 1986 (File No. 1-4219)).

10(e)*+ Zapata Supplemental Pension Plan effective as of April 1, 1992
(Exhibit 10(b) to Zapata's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1992 (File No. 1-4219)).

10(f)*+ Zapata Annual Incentive Plan effective January 1, 1991
(Exhibit 10(h) to Zapata's Registration Statement on Form S-1
(Registration No. 33-40286)).

10(g)*+ Employment Agreement between Lamar C. McIntyre and Zapata
dated as of October 1, 1994 (Exhibit 10(v) to Zapata's Annual
Report on Form 10-K for the Fiscal year ended September 30,
1994 (File No. 1-4219)).

10(h)* Stock Purchase Agreement dated as of August 7, 1995 between
Zapata Corporation and Malcolm I. Glazer (Exhibit 10(o) to
Zapata's Annual Report on Form 10-K for the Fiscal year ended
September 30, 1995 (File No. 1-4219)).

10(i)* Purchase and Sale Agreement dated March 26, 1996 by and among
Cimarron Gas Holding Company, Conoco Inc. and Enogex Products
Corporation (Exhibit

-52-
<PAGE> 56

2.1 to Zapata's Current Report on Form 8-K dated April 9, 1996
(File No. 1-4219)).

10(j)* Amendment and Clarification of Purchase and Sale Agreement,
Waiver and Closing Agreement dated April 9, 1996 (Exhibit 2.2
to Zapata's Current Report on Form 8-K dated April 9, 1996
(File No. 1-4219)).

10(k)* Agreement and Plan of Merger dated as of June 4, 1996 among
Zapata, Zapata Acquisition Corp. and Houlihan's (Exhibit 2.1
to Zapata's Registration Statement on Form S-4 (Reg. No.
333-06729)).

10(l)* Standstill Agreement dated April 30, 1996 between Zapata and
Malcolm I. Glazer (Exhibit 10.18 to Zapata's Registration
Statement on Form S-4 (Reg. No. 333-06729)).

10(m)* Irrevocable proxy dated June 4, 1996 granted by Malcolm I.
Glazer to members of a Special Committee of the Board of
Directors of Zapata (Exhibit 10.19 to Zapata's Registration
Statement on Form S-4 (Reg. No. 333-06729)).

10(n)* Supplemental Agreement dated June 4, 1996 between Malcolm I.
Glazer and Zapata (Exhibit 10.20 to Zapata's Registration
Statement on Form S-4 (Reg. No. 333-06729)).

10(o)*+ 1996 Long-Term Incentive Plan of Zapata (Appendix A to
Zapata's Definitive Proxy Statement Dated November 13, 1996
(File No. 1-4219)).

10(p)*+ Employment Agreement between Joseph L. von Rosenberg III and
Zapata effective as of June 1, 1996.

10(q)* Shareholders' Agreement dated May 30, 1997 by Malcolm I.
Glazer and the Malcolm I. Glazer Family Limited Partnership in
favor of Zapata (Exhibit 10(z) to Zapata's Quarterly Report on
Form 10-Q for the Fiscal quarter ended June 30, 1997 (File No.
1-4219)).

10(r)* Underwriting Agreement dated April 12, 1998 among Zapata,
Omega Protein and Prudential Securities Incorporated and
Deutsche Morgan Grenfell, Inc., as representatives of the
underwriters named therein. (Exhibit 10.1 to Zapata's Current
Report on Form 8-K filed April 21, 1998 (File No. 1-4219)).

10(s)* Separation Agreement dated April 8, 1998 between Zapata and
Omega Protein. (Exhibit 10.2 to Zapata's Current Report on
Form 8-K filed April 21, 1998 (File No. 1-4219)).

10(t)* Administrative Services Agreement dated April 8, 1998 between
Zapata and Omega Protein. -(Exhibit 10.3 to Zapata's Current
Report on Form 8-K filed April 21, 1998 (File No. 1-4219)).

10(u)* Letter Agreement dated July 9, 1998, among Viskase, Inc.
(f/k/a Envirodyne Industries, Inc.), Zapata, Malcolm Glazer
and Avram Glazer (Exhibit 1 to Amendment No. 12 to Schedule
13D filed on July 22, 1998 by Zapata with respect to common
stock of Viskase, Inc.).

21 Subsidiaries of the Registrant.

-53-
<PAGE> 57

23 Consent of PricewaterhouseCoopers LLP

24 Powers of attorney.

27 Financial Data Schedule.

+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to the requirements of Item 14(c) of Form 10-K.

(b) CURRENT REPORTS ON FORM 8-K.

Current Report on Form 8-K dated December 24, 1997 reporting on
Zapata's capital stock and related matters.

Current Report on Form 8-K dated April 21, 1998 reporting (Item 5)
reporting the Omega Protein Offering.

Current Report on Form 8-K dated July 22, 1998 reporting (Item 5) that
Zapata's internet initiative, possible spin-off or initial public offering of
Zap and 5 million share stock repurchase program.

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

-54-
<PAGE> 58

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.

ZAPATA CORPORATION
(Registrant)

By: /s/ Leonard DiSalvo
-------------------------------
(Leonard DiSalvo Vice President)

December 29, 1998

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.

SIGNATURE TITLE DATE
- --------- ----- ----

/s/ Avram A. Glazer* President and Chief December 29, 1998
- ----------------------------- Executive Officer
(Avram A. Glazer) (Principal Executive
Officer) and Director

/s/ Leonard DiSalvo Vice President and December 29, 1998
- ----------------------------- Chief Financial Officer
(Leonard DiSalvo) (Principal Financial and
Accounting Officer)

/s/ Warren H. Gfeller*
- -----------------------------
(Warren H. Gfeller)

/s/ Bryan G. Glazer*
- -----------------------------
(Bryan G. Glazer)

/s/ Edward S. Glazer*
- -----------------------------
(Edward S. Glazer)

/s/ Malcolm I. Glazer* Directors of the Registrant December 29, 1998
- -----------------------------
(Malcolm I. Glazer)

/s/ Robert V. Leffler, Jr.*
- -----------------------------
(Robert V. Leffler, Jr.)

/s/ David N. Litman*
- -----------------------------
(David N. Litman)

*By: /s/ Leonard DiSalvo
- -----------------------------
(Leonard DiSalvo Attorney-in-Fact)

-55-
<PAGE> 59
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors of Zapata Corporation:

Our audits on the consolidated financial statements of Zapata Corporation
referred to in our report dated November 18, 1998 are included in Item 8 of this
Form 10-K also included an audit of the financial statement schedule listed
in Item 14(c) of Part IV of this Form 10-K. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
required to be included therein when read in conjunction with the related
consolidated financial statements.

PricewaterhouseCoopers LLP

December 18, 1998

-56-
<PAGE> 60
SCHEDULE II

ZAPATA CORPORATION
VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
----------------------
DESCRIPTION BALANCE AT CHARGED IN CHARGED IN BALANCE AT
BEGINNING COSTS AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(A) PERIOD
--------- -------- -------- ------------- ------
<S> <C> <C> <C> <C> <C>
September 30, 1996:
Allowance for doubtful accounts $ 163,812 $ 8,759 -- $ (11,690) $ 160,881
Inventory reserve 102,000 -- -- -- 102,000
September 30, 1997
Allowance for doubtful accounts $ 160,881 $ 50,000 -- $ (35,164) $ 175,717
Inventory reserve 102,000 -- -- -- 102,000
September 30, 1998
Allowance for doubtful accounts $ 175,717 $ 27,500 -- $ (11,167) $ 192,050
Inventory reserve 102,000 -- -- -- 102,000
</TABLE>

- ----------
(A) Allowance for Doubtful accounts - uncollectible accounts written off.

-57-
<PAGE> 61
EXHIBIT INDEX
-------------