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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 001-14003
ZAPATA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
STATE OF NEVADA C-74-1339132
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
100 MERIDIAN CENTRE, SUITE 350
ROCHESTER, NY 14618
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (716) 242-2000
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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 NO .
--- ---
NUMBER OF SHARES OUTSTANDING (LESS TREASURY SHARES) OF THE REGISTRANT'S
COMMON STOCK, PAR VALUE $0.01 PER SHARE, ON APRIL 26, 2000: 23,887,078
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ZAPATA CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet as of March 31, 2000 (unaudited) and
December 31, 1999...................................................3
Unaudited Consolidated Statement of Operations for the
three months ended March 31, 2000 and 1999.........................4
Unaudited Consolidated Statement of Cash Flows for the
three months ended March 31, 2000 and 1999.........................5
Notes to Unaudited Consolidated Financial Statements.................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...................................................14
ITEM 2. CHANGES IN SECURITIES...............................................14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.....................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................14
ITEM 5. OTHER INFORMATION...................................................15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................15
SIGNATURES...................................................................16
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND NOTES
ZAPATA CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
---------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 108,689 $ 72,751
Short term investments 11,090 44,370
Receivables 19,251 21,793
Inventories, net 40,081 46,112
Production payment receivables, current 0 1,673
Prepaid expenses and other current assets 1,633 2,187
--------- ---------
Total current assets 180,744 188,886
--------- ---------
Investments and other assets:
Other assets 20,372 19,876
--------- ---------
20,372 19,876
--------- ---------
Property and equipment, net 93,101 91,052
--------- ---------
$ 294,217 $ 299,814
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,168 $ 1,146
Accounts payable 2,307 2,637
Accrued liabilities and deferred taxes 11,620 14,977
--------- ---------
Total current liabilities 15,095 18,760
--------- ---------
Long-term debt 15,753 16,069
Other liabilities and deferred taxes 7,398 8,009
Minority interest 58,314 58,731
--------- ---------
Total liabilities 96,560 101,569
--------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock, ($0.01 par), 30,667,178 and 30,679,028 issued 307 307
and outstanding on March 31, 2000 (unaudited) and
December 31, 1999, respectively
Capital in excess of par value 176,638 175,155
Reinvested earnings, from October 1, 1990 quasi-reorganization 62,703 65,377
Treasury stock, at cost, 6,790,100 shares at March 31, 2000 and (31,668) (31,668)
at December 31, 1999
Deferred consulting expense (9,678) (10,329)
Accumulated other comprehensive loss (645) (597)
--------- ---------
Total stockholders' equity 197,657 198,245
--------- ---------
Total liabilities and stockholders' equity $ 294,217 $ 299,814
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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ZAPATA CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues $ 19,388 $ 22,162
Cost of Sales 18,490 16,698
-------- --------
Gross Profit 898 5,464
Operating Expenses:
Product Development 523 830
Selling, general and administrative 4,219 2,003
Consulting Expense 2,135 -
-------- --------
6,877 2,833
Operating (loss) income (5,979) 2,631
-------- --------
Other income (expense):
Interest income 1,677 1,891
Interest expense (319) (229)
Other income (expense), net (119) (3,388)
-------- --------
1,239 (1,726)
-------- --------
(Loss) /Income before income taxes and minority interest (4,740) 905
Provision for income taxes 1,650 (308)
Minority interest in net loss (income) of consolidated subsidiary 417 (1,209)
-------- --------
Net loss (2,673) (612)
Other comprehensive loss (645) -
-------- --------
Total comprehensive loss $ (3,318) $ (612)
======== ========
Per share data (basic and diluted):
Net loss per share ($0.11) ($0.03)
======== ========
Average common shares outstanding 23,887 23,877
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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ZAPATA CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
--------- ----------
<S> <C> <C>
Cash flows provided by operating activities:
Net loss ($2,673) ($612)
--------- ---------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 2,461 2,017
Loss on sale of assets 94 -
Warrants expense-Zap.Com 2,135 -
Minority interest in net (loss) income of consolidated subsidiary (417) 1,209
Changes in assets and liabilities
Receivables 2,542 1,612
Inventories 6,031 1,217
Prepaid expenses and other current assets 554 378
Accounts payable (331) (1,502)
Accrued liabilities (3,538) 29
Other assets (714) 888
Other liabilities (485) (2,297)
--------- ---------
Total adjustments 8,332 3,551
--------- ---------
Net cash provided by operating activities 5,659 2,939
--------- ---------
Cash flows provided (used) by investing activities:
Proceeds from production payment receivable 1,673 157
Sale of short term investments 44,370 -
Purchase of short term investments (11,090) -
Capital additions (4,380) (5,660)
--------- ---------
Net cash provided (used) by investing activities 30,573 (5,503)
--------- ---------
Cash flows used by financing activities:
Purchase of treasury shares by consolidated subsidiary - (1,492)
Repayments of long-term obligations (294) (341)
--------- ---------
Cash used by financing activities (294) (1,833)
--------- ---------
Net increase (decrease) in cash and cash equivalents 35,938 (4,397)
Cash and cash equivalents at beginning of period 72,751 154,704
--------- ---------
Cash and cash equivalents at end of period $ 108,689 $ 150,307
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
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ZAPATA CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. FINANCIAL STATEMENTS
SUMMARY OF OPERATIONS AND BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have
been prepared by the Zapata Corporation, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. The financial
statements reflect all adjustments that are, in the opinion of management,
necessary to fairly present such information. All such adjustments are of a
normal recurring nature. Although Zapata believes that the disclosures are
adequate to make the information presented not misleading, certain information
and footnote disclosures, including a description of significant accounting
policies normally included in financial statements prepared in accordance with
generally accepted accounting principles, have been condensed or omitted
pursuant to such rules and regulations. These financial statements should be
read in conjunction with the financial statements and the notes thereto
included in Zapata's 1999 Annual Report on Form 10-K filed with the Securities
and Exchange Commission. The results of operations for the fiscal quarter from
January 1, 2000 to March 31, 2000 are not necessarily indicative of the results
for any subsequent quarter or the entire fiscal year ending December 31, 2000.
Business Description
Zapata Corporation ("Zapata" or the "Company") is the holder of
approximately 61% of the outstanding common stock of Omega Protein Corporation,
("Omega Protein") (formerly known as Marine Genetics Corporation and Zapata
Protein, Inc.) (NYSE: OME) which markets a variety of products produced from
menhaden (a fish found in commercial quantities), including regular grade and
value added specialty fish meals, crude and refined fish oils and fish solubles.
Zapata also holds approximately 98% of the outstanding stock of ZAP.COM
Corporation ("ZAP.COM") (OTCBB: ZPCM), an internet development stage company.
Zapata also operates the Internet based magazines Word and Charged. In addition,
Zapata holds approximately 40% of the outstanding common stock of Viskase
Companies, Inc. ("Viskase") (formerly known as Envirodyne Industries, Inc.)
(Nasdaq: VCIC) which is primarily engaged in the business of selling food and
packaging products and disposable food service supplies.
Short-Term Investments
As of March 31, 2000 and December 31, 1999 Zapata held approximately
$11.1 and $44.4 million respectively in short-term investments in government
backed securities. The company considers those investments with a maturity
period greater than 90 days and less than 360 days to be short-term investments.
Reclassification
During the quarter ended March 31, 2000, reclassification of prior
period 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.
Concentrations of credit risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
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 March 31, 2000, and 1999, the Company had cash deposits concentrated
primarily at four major banks and investment institutions in which the Company
invests in government securities, bank notes, certificates of deposit, and
commercial quality paper grade A2P2 rated or better. As a result of the
foregoing, the Company believes that credit risk in such investments is minimal.
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NOTE 2. 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. In June and July 1996, Zapata purchased 1,688,006 additional
shares of Viskase common stock. As a result of these transactions, Zapata
currently owns approximately 40% of the outstanding shares of Viskase common
stock.
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. Since Zapata reports its equity
in Viskase's results of operations on a three-month delayed basis, the impact
of this loss was recorded in the transition period ending December 31, 1998.
Because Zapata has not guaranteed any obligations and is not committed to
provide any financial support to Viskase, Zapata only recorded its equity in
Viskase's loss to the extent that it reduced Zapata's net investment in Viskase
to zero. At March 31, 2000, the fair value of Zapata's investment in Viskase
was approximately $9.9 million based on the closing price of Viskase on that
day. As of the May 12, 2000, Viskase had not yet reported its results for its
year ended December 31, 1999.
NOTE 3. COMMITMENTS AND CONTINGENCIES
LITIGATION
On April 30, 1999, a state district court in Houston, Texas entered a
judgment against Zapata in a lawsuit brought by a former employee which was
commenced on April 1, 1998. The former employee claims that he was entitled to
the value of options for approximately 240,000 shares of Zapata stock which he
alleges should have been issued to him in 1998 pursuant to his employment
agreement with Zapata. The judgment against Zapata was for approximately $3.45
million, which includes prejudgment interest. Zapata has posted a bond and on
July 29, 1999 perfected its appeal with the Court of Appeal, for the Fourteenth
District of Texas at Houston. Briefs have been filed with the Appellate Court
and the parties are awaiting scheduling for oral arguments. The Company
continues to believe that it has a meritorious defense to all or a substantial
portion of the plaintiff's claim. However, there can be no assurance that the
Company will be successful in appealing the judgment.
The Company is involved in litigation to claims arising out of its past
and current operations in the normal course of its business. The Company
maintains 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, any losses resulting from these matters will not have a
material adverse effect on Zapata's results of operations, cash flows or
financial position.
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 4. RELATED PARTY TRANSACTIONS
The Company has provided the services of it's management and staff to
it's subsidiary, Zap.Com during its start-up period. The actual payroll and
related fringe benefit costs for these employees for the three months ended
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March 31, 2000 of approximately $75,000 was allocated by the Company using a
percentage of time analysis. Zap.Com's headquarters in Rochester, New York are
located in space subleased to it by the Company. Under the sublease agreement,
annual rental payments are allocated on a cost basis. Total rental payments from
Zap.Com during the three months ended March 31, 2000 was $8,700. On April 30,
2000, Zapata notified Zap.Com that effective as of May 1, 2000, it waives its
right to reimbursement of those compensation payments for at least the next 12
months.
NOTE 5. INVENTORY
Inventory is summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Fish meal...................................................... $ 11,963 $ 24,195
Fish oil....................................................... 3,678 8,445
Fish solubles.................................................. 917 1,538
Off season cost................................................ 18,685 7,282
Materials and supplies......................................... 4,857 4,633
Other.......................................................... 83 121
Less: fish oil inventory reserve............................... (102) (102)
--------- ---------
Total inventory................................................ $ 40,081 $ 46,112
========= =========
</TABLE>
NOTE 6. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
Zapata is a holding company headquartered in Rochester, New York.
Zapata's business is comprised of two industry segments operating in the
U.S.--marine protein and the Internet. Zapata's majority owned subsidiary Omega
Protein is engaged in menhaden fishing for the production and sale of fish meal
and fish oil. Omega Protein is headquartered in Houston, Texas with primary
operations in Hammond, Louisiana.
Zapata, through a subsidiary, operates several Web sites, including
www.word.com, www.charged.com, www.sissyfight.com, and www.pixeltime.com, in
New York, New York. Zapata's majority owned subsidiary, Zap.Com, is a
development stage Internet company with plans to build a network of independent
Web sites, and is headquartered in Rochester, New York.
<TABLE>
<CAPTION>
OPERATING
(LOSS) IDENTIFIABLE
REVENUES INCOME ASSETS
-------- ------ ------
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 2000
Omega Protein................. $ 19,387 $ (1,282) $ 172,704
Internet...................... 1 (3,709) 7,495
Corporate..................... -- (988) 114,018
--------- ----------- ---------
$ 19,388 $ (5,979) $ 294,217
THREE MONTHS ENDED MARCH 31, 1999
Omega Protein................. $ 22,155 $ 4,481 $ 190,658
Internet...................... 7 (1,192) 293
Corporate..................... -- (658) 126,272
--------- ------------ ---------
$ 22,162 $ 2,631 $ 317,223
</TABLE>
NOTE 7. SUBSEQUENT EVENTS
During the first quarter of 2000, Zap.Com registered 20,000,0000 shares
of its common stock to be available for issuance to pay ZapNetwork members.
During April 2000, Zap.Com decided to restructure the relationship which it had
previously proposed to potential ZapNetwork members. Zap.Com had originally
sought to build the ZapNetwork by purchasing perpetual display rights to a Web
site in exchange for stock. On May 2, 2000 Zap.Com filed a Post- Effective
Amendment on Form S-1, which was declared effective by the SEC on May 11, 2000
to reflect revisions to the ZapNetwork membership agreement. Zap.Com is now
seeking to enter into contractual relationships with ZapNetwork members that are
terminable on, among other things, 90 days notice from either party therby
eliminating the purchase element. In addition, Zap.Com has added an advertising
revenue sharing component to the ZapNetwork agreement. As shares of Zap.Com
common stock are issued to ZapNetwork members Zapata's ownership percentage will
decrease.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-looking statements in this Form 10-Q, future filings by the
Company with the Securities and Exchange Commission ("Commission"), the
Company's press releases and oral statements by authorized officers of the
Company are intended to be subject to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation those identified from time to time in press releases and other
communications with stockholders by the Company and the filings made with the
Securities and Exchange Commission by the Company, Omega Protein Corporation
("Omega Protein" or "Omega") and Viskase Companies, Inc., ("Viskase") and
disclosed under the caption "Significant Factors That Could Affect Future
Performance and Forward-Looking Statements" appearing in Item 2 "Management's
Discussion and Analysis of Financial Condition and Results of Operation" of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999
filed with the Commission. The Company believes that forward-looking statements
made by it are based on reasonable expectations. However, no assurances can be
given that actual results will not differ materially from those contained in
such forward-looking statements.
GENERAL
Zapata is a holding company with majority ownership stakes in Omega
Protein, which markets a variety of products produced from menhaden (a fish
found in commercial quantities), including regular grade and value added
specialty fish meals, crude and refined fish oils and fish solubles, and
Zap.Com, a development stage Internet company which seeks to build a network of
independently owned Web sites through which it will distribute user content,
advertising, and e-commerce. Zapata also operates several Web sites through a
wholly-owned subsidiary, including, www.word.com, www.charged.com,
www.sissyfight.com, and www.pixeltime.com. As of March 31, 2000, Zapata had
approximately $119.8 million in consolidated cash, cash equivalents,
short-term investments generally in government backed securities, commercial
paper, and certificates of deposit. In addition, Zapata owns approximately 40%
of Viskase Companies, which is primarily engaged in the business of selling
food packaging products and disposable food service supplies.
In 1998, Omega Protein, Zapata's then wholly owned subsidiary,
completed its initial public offering raising $144.6 million in net proceeds, of
which $76.6 million was paid directly to Zapata for shares it sold in the
offering. As of the date of this report, Zapata holds 14,501,000 shares or
approximately 61% of Omega Protein's outstanding common stock. Zapata reports
Omega Protein's results of operations on a consolidated basis.
On November 12, 1999, Zapata distributed to its stockholders 477,742
shares of Zap.Com common stock, or one share of Zap.Com common stock for every
50 shares of Zapata common stock held by Zapata stockholders on the record date
of November 5, 1999. As of the date of this report, Zapata holds 48,972,258
shares of Zap.Com, or approximately 98% of its outstanding common stock. Zapata
reports Zap.Com's results on a consolidated basis.
As of the date of this report, Zapata holds 5,877,304 shares of Viskase
common stock, or approximately 40% of its outstanding common stock. Zapata's
investment in Viskase is accounted for using the equity method. Since
historically Viskase's financial statements have not been available to Zapata on
a basis that would permit concurrent reporting, Zapata has reported its equity
in Viskase's results of operations on a three-month delay basis. In the three-
month transition period ending December 31, 1998, Viskase reported a net loss of
$119.6 million which caused Zapata to write-off its investment in Viskase.
In December 1999, Zapata entered into an agreement with Panaco, Inc. to
sell a gas production royalty payment obligation for $1.7 million in immediately
available funds (the "Production Payment Receivable Sale"). This transaction
closed in January 2000.
During the first quarter of 2000, Zap.Com registered 20,000,0000 shares
of its common stock to be available for issuance to pay ZapNetwork members.
During April 2000, Zap.Com decided to restructure the relationship which it had
previously proposed to potential ZapNetwork members. Zap.Com had originally
sought to build the ZapNetwork by purchasing
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perpetual display rights to a Web site in exchange for stock. On May 2, 2000
Zap.Com filed a Post- Effective Amendment on Form S-1, which was declared
effective by the SEC on May 11, 2000 to reflect revisions to the ZapNetwork
membership agreement. Zap.Com is now seeking to enter into contractual
relationships with ZapNetwork members that are terminable on, among other
things, 90 days notice from either party therby eliminating the purchase
element. In addition, Zap.Com has added an advertising revenue sharing component
to the ZapNetwork agreement. As shares of Zap.Com common stock are issued to
ZapNetwork members Zapata's ownership percentage will decrease.
RESULTS OF OPERATIONS
Zapata experienced a consolidated net loss of approximately $2.7
million for the quarter ending March 31, 2000 compared to a net loss of
$612,000 for the quarter ending March 31, 1999. The loss was primarily
attributable to start-up expenses incurred by Zap.Com and Omega Protein's
decline in net income during the quarter ended March 31, 2000 as compared to the
comparable period ended March 31, 1999. Revenues totaled $19.4 million during
the 2000 quarter versus $22.2 million during the 1999 quarter. This decline in
revenue is attributable to lower sales prices for Omega Protein's fish meal and
fish oil. The Company's gross profit declined from $5.5 million in the 1999
quarter to approximately $900,000 in the 2000 quarter primarily due to lower
Omega Protein sales and higher Omega Protein cost of sales. Operating expenses
increased from $2.8 million to $6.9 million primarily reflecting costs incurred
by Zap.Com including $2.1 million in non-cash consulting expense. The Company
anticipates to continue to incur significant operating expenses during the
remainder of this year in connection with the consolidation of ZAP.COM into its
financial statements.
The Company's net interest income was lower in the current period as
compared to the corresponding prior-year period reflecting lower levels of cash
and cash equivalents and short term investments. Other expense decreased by
$3.2 million attributable to the absence of a $3.3 million legal loss
contingency for the unfavorable ruling against the company for a case
concerning a former employee which was recorded in March, 1999. The Company
also recorded a tax benefit of $1.7 million for the quarter ending March 31,
2000 which represents an effective tax rate of 35% on consolidated earnings
prior to consideration of minority interest. The effective tax rate
approximates the applicable combined state and federal statutory tax rates for
the respective periods. Minority interest recorded in the 2000 quarter
represents the approximately 40% ownership interest in the results of Omega
Protein not held by Zapata as well as the 2% outside ownership interest in the
results of Zap.Com.
The following presents a more detailed discussion of the consolidated
operating results:
RESULTS OF OPERATIONS
REVENUES. For the three-months ended March 31, 2000 Zapata's revenues
decreased approximately $2.8 million, or 12.5% from $22.2 million in the
quarter ended March 31, 1999 to $19.4 million in the three months ended
March 31, 2000. The decrease in revenue was attributable to Omega's lower
sales prices for its fish meal and fish oil. Sales volumes for Omega's fish
meal and fish oil were higher in the current quarter as compared to the
quarter ended March 31, 1999. Fish meal sales volumes for the current
quarter increased 36.1%, and fish oil sales volumes increased 49.3% for the
current quarter from the comparable prior year quarter ended March 31, 1999.
Fish meal sales prices and fish oil sales prices declined 29.3% and 50.8%
respectively. Omega attributes the decrease in selling prices to low
cyclical feed costs affecting the protein industry.
Zap.Com did not report any revenue for the quarter ended March 31,
2000. Zap.Com does not presently have any source of revenue and its ability
to generate revenue will depend on its ability to contract with Web Sites to
join the ZapNetwork and to successfully market the ZapBox to potential
customers.
COST OF SALES. Zapata's cost of sales for the quarter ended March 31,
2000 was $18.5 million, a $1.8 million increase from $16.7 million in the
quarter ended March 31, 1999. Cost of sales includes Omega Protein's direct
fishing and processing costs, and Zap.Com's cost associated with the
deployment of the ZapBox. As a percent of revenues, cost of sales was 95.4%
in the quarter ended March 31, 2000 as compared to 75.3% in the quarter
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ended March 31, 1999. The increase in cost of sales as a percent of revenues
was due primarily to the decrease in Omega's selling prices for fish meal
and fish oil of 29.3% and 50.8% respectively during the quarter ending March
31, 2000. Omega's per ton cost of sales were 14.4% lower in the quarter
ended March 31, 2000 as compared to the quarter ended March 31, 1999, due
mainly to lower inventoriable costs to date carried forward from fiscal
1999. The lower inventory cost carried forward from Fiscal 1999 resulted
from Omega Protein's record inventory write-down during the third quarter
and fourth quarter of Fiscal 1999 of $14.5 million and $3.7 million
respectively. The Fiscal 1999 inventory write-downs resulted from cyclical
market declines on the inventory values of Omega's fish meal and fish oil.
Zap.Com recorded cost of revenues of approximately $193,000 which was
expended in design, delivery, and maintenance of its Web application, the
ZapBox. Zap.Com expects to record significant expenses in the remainder of
2000 and beyond associated with the development of a supporting
infrastructure and network, the hiring of additional employees and the
expansion of its business. On a consolidated basis, these expenses are
expected to significantly increase Zapata's cost of revenues.
PRODUCT DEVELOPMENT. Product development costs decreased from $830,000
in the three months ended March 31, 1999 to $523,000 in the three months
ending March 31, 2000 and consisted of web site and software development
costs incurred by Zap.Com and Zapata's webzines, www.word.com and
www.charged.com, and its Internet game site, www.sissyfight.com. This
decline was primarily due to decreased costs associated with the production
of Zapata word.com and charged.com Web sites. Zap.Com incurred product
development costs in connection with the design of its web site at
www.zap.com and the design of its Web application, the Zap.Box.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Zapata's consolidated
selling, general and administrative expenses increased $2.2 million or 100%
from $2.0 million in the quarter ended March 31, 1999 compared to $4.2
million in the quarter ended March 31, 2000. The increase in expense was
primarily due to the increased general and legal costs associated with the
start-up activities of Zap.Com. In addition, Zap.Com anticipates incurring
significant expenses associated with the consideration to be paid Web site
owners who join the ZapNetwork. On a consolidated basis, these charges are
expected to significantly increase future selling, general and
administrative expenses.
CONSULTING EXPENSE. Zap.Com recorded non-cash consulting expense in the
amount of $2.1 million associated with the issuance of warrants to American
Internetwork Sports, a related party, in November 1999 for consulting
expenses that vest over three years. The expense which is recorded is
dependent on the then current fair value of these warrants earned during
each reporting period, and therefore, may significantly fluctuate between
periods.
INTEREST INCOME. Interest income decreased by $214,000 in the quarter
ended March 31, 2000 as compared to the previous quarter ended March 31,
1999. The decrease in interest income was due to the reduction of cash and
cash equivalents and short term investments available for investment
purposes during the quarter ended March 31, 2000 as compared to the previous
quarter ended March 31, 1999.
OTHER (EXPENSE) INCOME, NET. Other expense decreased $3.3 million from
$3.4 in the quarter ended March 31, 1999 to $119,000 in the three months
ended March, 31, 2000. This decrease is attributable to a $3.3 million
expense recognized in the first quarter of 1999 to reserve against potential
costs associated with a judgment against Zapata on a claim for an alleged
breach of employment contract made by a former Zapata employee. Zapata has
appealed the Court's decision in this lawsuit. (See Part II - Item 1. -
Legal Proceedings)
MINORITY INTEREST. Minority interest reflects the outside ownership of
Zapata's consolidated subsidiaries of approximately 39% in Omega Protein and
the 2% in Zap.Com. In the quarter ended March 31, 2000, minority interest
was a $417,000 reduction of Zapata's share of net losses incurred by Omega
Protein and Zap.Com compared to a $1.2 million reduction of Zapata's share
of net income incurred by Omega Protein in the quarter ended March 31, 1999.
Minority interest was recorded for Zap.Com's results since the November
12,1999 distribution of Zap.Com shares by Zapata to Zapata shareholders.
LIQUIDITY AND CAPITAL RESOURCES
12
<PAGE> 12
From September 30, 1995 to December 31, 1999, Zapata's main source of
liquidity was the Energy Industries Sale, the Cimmaron Sale, the Bolivian Sale,
the operations and activities of Omega Protein and Omega Protein' 1998 public
offering. At March 31, 2000, Zapata's main sources of liquidity were cash, cash
equivalents and short-term investments which aggregated (on an unconsolidated
basis) to approximately $94.5 million, as compared to $93.9 million at December
31, 1999. This increase in liquidity was due to the receipt of $1.7 million in
settlement for a production payment receivable offset by the payment of 1999
bonuses and the use of cash to fund Zapata's operations.
Prior to Omega Protein's 1998 initial public offering, Zapata, as the
sole stockholder of Omega Protein caused cash to be moved between it and Omega
Protein as each company had cash needs. As a result of the offering, Zapata and
Omega Protein are now separate public companies. Similarly, since Zapata's
distribution of Zap.Com shares to Zapata stockholders in November 1999, Zapata
and Zap.Com are separate public companies. Accordingly, the capital resources
and liquidity of Omega Protein and Zap.Com (which included cash and cash
equivalents of $19.0 million and $15.7 million at Omega Protein at March 31,
2000 and December 31, 2000 and $6.3 million and $7.6 million at Zap.Com at March
31, 2000 and December 31, 1999, respectively) are legally independent of Zapata.
The working capital and other assets of Omega Protein and Zap.Com are dedicated
to their respective operations and are not expected to be readily available for
the general corporate purposes of Zapata, except for any dividends which may be
declared and paid to their respective stockholders. For the foreseeable future,
Zapata does not expect to receive cash dividends on its Omega Protein or Zap.Com
shares.
Zapata's secondary source of liquidity is its publicly traded
securities of Omega Protein, Zap.Com and Viskase. Zapata's holdings of Omega
Protein and Zap.Com stock constitute "restricted stock" under SEC Rule 144 and
may only be sold in the public market pursuant to an effective registration
statement under the Securities Act of 1933 and under any required state
securities laws or pursuant to an available exemption. Zapata's Viskase holdings
may also be considered to be "restricted securities" under Rule 144. These and
other securities law restrictions could prevent or delay any sale by Zapata of
these securities or reduce the amount of proceeds that might otherwise be
realized therefrom.
Currently, all of Zapata's equity securities holdings are eligible for
sale under Rule 144. Zapata also has demand and piggyback registration rights
for its Omega Protein and Zap.Com shares and Zapata has registered with the SEC
for resale 1,000,000 shares of Zap.Com common stock. As of the date of this
report, it has not sold any of its Zap.Com shares and there is no assurance that
it will or can sell these shares. Although Zap.Com is publicly traded, the
market for its shares has to date been thin.
Zapata from time to time has other sources of liquidity. In January
2000, Zapata received approximately $1.7 in immediately available funds in
connection with the Production Payment Receivable Sale. In April 2000, Zapata
received approximately $3.2 million as a result of the carry back of net
operating losses incurred during Fiscal 1999. As a result, Zapata's deferred tax
assets declined by this amount.
At March 31, 2000, Zapata had $17.0 million in consolidated
indebtedness, all of which was Omega Protein's indebtedness. Zapata has not
guaranteed and is not legally responsible for this indebtedness. Zapata's
liquidity needs are primarily for operating expenses, litigation and insurance
reserves, possible stock repurchases and possible acquisitions or investments.
In addition, Zapata is committed to approximately $650,000 under a services
contract with Qwest Communications Inc. related to the acquisition of the "Word"
and "Charged" webzines in April 1998. In the event of future acquisitions or
investments, 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.
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 Zapata's management and other corporate considerations.
Repurchased shares will be held as treasury shares available for general
corporate
13
<PAGE> 13
purposes. To date, Zapata has not made any repurchases under this program.
Zapata reserves the right to discontinue the repurchase program at any time.
In the absence of unforeseen developments, Zapata believes that
existing cash, cash equivalents, short-term investments and other sources of
liquidity will be sufficient to fund Zapata's operating expenses and other
operational requirements at least for the 12 months following the date of this
report.
Cash Flows From Operating Activities
Cash provided by operating activities was $5.7 million in the first quarter of
2000 compared to $2.9 million for the same period in 1999. The increase in cash
provided by operating activities was due primarily to positive cash flows from
inventory and receivables, which were slightly offset by a pay down of accrued
liabilities.
Cash Flows From Investing Activities
Cash provided by investing activities was $30.6 million in the first quarter of
2000, compared to cash used by investing activities of $5.5 million for the
same period in 1999. The increase of cash flows from investing activities was
driven primarily by the sale of short-term investments for purchase of
government backed securities with original maturities of 90 days or less, which
are classified in cash and cash equivalents.
Cash Flows from Financing Activities
Cash used by financing activities was $0.3 million in the first quarter of
2000, compared to $1.8 million for the same period in 1999. This decrease was
due primarily to the abscense of treasury share purchases by Omega Protein
which occurred during 1999.
YEAR 2000
Many companies' computer systems, software products and control devices
needed to be upgraded or replaced in order to operate properly in the Year 2000
and because of the inability to distinguish 21st century dates from the 20th
century dates Zapata and its consolidated subsidiaries reported they were aware
of the issues associated with the programming code in existing computer systems
as the year 2000 approached.
As of the date of this report, Zapata has not experienced any Year 2000
problems nor does it expect any future Year 2000 problems in the year 2000. Both
Omega Protein and Zap.Com Corporation have reported that they have not
experienced any Year 2000 problems nor do they expect any future Year 2000
related problems in the year 2000.
PART II. -OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 30, 1999, a state district court in Houston, Texas entered a
judgment against Zapata in a lawsuit brought by a former employee which was
commenced on April 1, 1998. The former employee claims that he was entitled to
the value of options for approximately 240,000 shares of Zapata stock which he
alleges should have been issued to him in 1998 pursuant to his employment
agreement with Zapata. The judgment against Zapata was for approximately $3.45
million, which includes prejudgment interest. Zapata has secured a letter of
credit and on July 29, 1999 perfected its appeal with the Court of Appeal, for
the Fourteenth District of Texas at Houston. Briefs have been filed with the
appellate court and the parties are awaiting scheduling for oral arguments. The
Company continues to believe that it has a meritorious defense to all or a
substantial portion of the plaintiff's claim. However, there can be no assurance
that the Company will be successful in appealing the judgment.
The Company is involved in litigation relating to claims arising out of
its past and current 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, any losses resulting from these
matters will not have a material adverse effect on Zapata's results of
operations, cash flows or financial position.
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.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
<PAGE> 14
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11.0 Statement Regarding Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
15
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ZAPATA CORPORATION
(Registrant)
May 15, 2000 By: /s/ LEONARD DISALVO
-------------------
(Vice President and Chief Financial Officer)
16
<PAGE> 1
Exhibit 11
ZAPATA CORPORATION
Statement Regarding Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
2000 1999
<S> <C> <C>
Net loss (in millions) $ (2,673) $ (612)
Actual outstanding Common 23,888,928 23,877,078
Shares at beginning of period
Sum of weighted average activity
Of Common shares issued for
Stock options -- --
Other adjustment (1,850) --
-------------- --------------
Weighted Basic Shares 23,887,078 23,877,078
Effect of assumed exercise of
Common Stock equivalents -- --
Weighted diluted shares 23,887,078 23,877,078
Basic earnings per share $ ($0.11) $ (0.03)
Diluted earnings per share $ ($0.11) $ (0.03)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 108,689
<SECURITIES> 11,090
<RECEIVABLES> 19,251
<ALLOWANCES> 0
<INVENTORY> 40,081
<CURRENT-ASSETS> 180,744
<PP&E> 137,785
<DEPRECIATION> 44,684
<TOTAL-ASSETS> 294,217
<CURRENT-LIABILITIES> 15,095
<BONDS> 15,753
0
0
<COMMON> 307
<OTHER-SE> 207,673
<TOTAL-LIABILITY-AND-EQUITY> 294,217
<SALES> 19,388
<TOTAL-REVENUES> 19,388
<CGS> 18,490
<TOTAL-COSTS> 18,490
<OTHER-EXPENSES> 6,877
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,677
<INCOME-PRETAX> (4,740)
<INCOME-TAX> 1,650
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,673
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
