ZAP COM CORP - 10-K Annual Report

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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 DECEMBER 31, 2001

OR

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

FOR THE TRANSITION PERIOD
FROM TO

COMMISSION FILE NUMBER: 000-27729

ZAP.COM CORPORATION
(Exact name of registrant as specified in charter)

NEVADA 76-0571159
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

100 MERIDIAN CENTRE, SUITE 350 14618
ROCHESTER, NEW YORK (Zip Code)
(Address of principal executive offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (585) 242-2000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

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

TITLE OF EACH CLASS
COMMON STOCK, $0.001 PAR VALUE

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 [ ]

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. [ ]

On March 8, 2002, the Company had 50,004,474 outstanding shares of common
stock, $0.001 par value. The aggregate market value of the Company's common
stock held by non-affiliates of the registrant was $49,111, based on the closing
price in trading on March 8, 2002 as reported on the National Association of
Securities Dealers over the counter electronic bulletin board. For the sole
purpose of making this calculation, the term "non-affiliate" has been
interpreted to exclude the directors, corporate officers and holders of 5% or
more of the Company's common stock. Such interpretation is not intended to be,
and should not be construed as, an admission by the Registrant or such
directors, corporate officers, or stockholders that such directors, corporate
officers or stockholders are "affiliates" of the Registrant, as that term is
defined in the Securities Act of 1933.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrant's Information Statement for its 2002 Annual
Meeting of Stockholders, which will be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, not later than 120 days after December
31, 2001, 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

The page numbers in this Table of Contents reflect actual page numbers not EDGAR
page tag numbers.

1

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. 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 or to update the reasons actual results could differ
from those projected in the forward-looking statements.

PART I

ITEM 1. BUSINESS

GENERAL

Zap.Com Corporation ("Zap.Com" or the "Company") was founded by Zapata
Corporation ("Zapata") (NYSE: ZAP) in April 1998 as a Nevada corporation.
Zap.Com's principal corporate offices are located at 100 Meridian Centre, Suite
350, Rochester, New York 14618.

BUSINESS DEVELOPMENT

Zapata formed Zap.Com for the purpose of creating and operating a global
network of independently owned web sites. In April 1999, Zap.Com announced its
plan to establish the ZapNetwork by connecting web sites through a proprietary
multi-functional, portal-like Internet banner known as the ZapBox. Zap.Com
intended to distribute advertising and e-commerce opportunities over this
network.

On December 15, 2000, the Zap.Com Board of Directors concluded that
Zap.Com's operations were not likely to become profitable in the foreseeable
future and therefore, it was in the best interest of the Company and its
stockholders to cease all Internet operations. Since that date, Zap.Com has
terminated all salaried employees, all signed agreements with web site owners
who joined the ZapNetwork, and all third party contractual relationships entered
into in connection with its Internet business.

During 2001, the Company completed its termination of its Internet
operations. The Company had no other significant activities during 2001 other
than to comply with its reporting requirements under the Securities Exchange Act
of 1934.

PLAN OF OPERATIONS

Currently, Zap.Com does not have any existing business operations, other
than maintaining its status as a public entity. In the future, Zap.Com's
principal activities are expected to be exploring methods to enhance stockholder
value. Zap.Com is likely to search for assets or businesses that it can acquire
so that it can become an operating company. Zap.Com may also consider developing
a new business suitable for its situation.

2

In pursuing acquisitions, the Company will have broad discretion in
identifying and selecting both the industries and the possible acquisition
candidates within those industries that it will acquire. The Company has not
identified a specific industry on which it initially intends to focus and has no
present plans, proposals, arrangements or understandings with respect to the
acquisition of any specific business. There can be no assurance that the Company
will be able to identify or successfully complete any acquisitions.

The Company has no preference as a general matter as to whether to issue
shares of common stock or cash in making acquisitions and it may use either
shares of its common stock or cash, or a combination thereof. The form of the
consideration that the Company uses for a particular acquisition will depend
upon the form of consideration that the sellers of the business require and the
most advantageous way for the Company to account for, or finance the
acquisition. To the extent the Company uses common stock for all or a portion of
the consideration to be paid for future acquisitions; existing stockholders may
experience significant dilution.

In order to effect an acquisition, Zap.Com may need additional financing.
There is no assurance that any such financing will be available, or available on
terms favorable or acceptable to the Company. In particular, potential third
party equity investors may be unwilling to invest in Zap.Com due to Zapata's
voting control over Zap.Com and the significant potential for dilution of a
potential investor's ownership in the Company's common stock. Zapata's voting
control may be unattractive because it makes it more difficult for a third party
to acquire the Company even if a change of control could benefit the Company's
stockholders by providing them with a premium over the then current market price
for their shares. If the Company raises additional funds through the issuance of
equity, equity-related or debt securities, these securities may have rights,
preferences or privileges senior to those of the rights of Zap.Com's common
stockholders, who would then experience dilution.

In general, any new business development is difficult, and the Company's
particular realities impose significant constraints that make such an
undertaking even more difficult. These constraints include the following: the
need to acquire or develop the business without paying substantial cash or
taking on significant debt, unless it can be serviced by cash flow from the new
business; the handicap of not having actively traded stock to use to procure
this business; the requirement that, after launch, the new business should not
need a significant capital investment to fund its initial operations unless this
can be accomplished through cash flow from the new business; and the requirement
that the new business should produce a positive cash flow in the near term.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

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

COMPETITION

Numerous companies throughout the United States will compete vigorously
with Zap.Com for target acquisition candidates. Venture capital companies as
well as established corporations and entities, most of which have greater
resources than the Company does, will vie for such acquisition candidates.

INTELLECTUAL PROPERTY

Zap.Com owns certain intellectual property rights related to the ZapBox and
the ZapNetwork. Zap.Com also currently has a patent application pending before
the United States Patent and Trademark Office for a business process patent
which is directed to a unique Internet-based commerce method and system
underlying the business model. Zap.Com has also filed various applications
seeking registration of its trademarks and service marks in the United States.
Zap.Com has not decided whether it will continue pursuing these patents in light
of the termination of its Internet business.

3

REGULATORY MATTERS

The Company does not yet know what business it will enter as this is
dependent on which target acquisition it determines to purchase; however all
industries have generally become increasingly regulated in recent years. The
Company is likely to be subject to the various States, Federal, and local laws,
rules, regulations and acts once it commences an acquisition and commences
active business operations.

EMPLOYEES

As of December 2000 when it terminated its Internet operations, Zap.Com had
six employees. Since that date, all salaried employees have been terminated. As
of the date of this report, Zap.Com has two employees, Avram Glazer, President
and CEO, and Leonard DiSalvo, VP-Finance and Chief Financial Officer. Neither
Mr. Glazer nor Mr. DiSalvo receive a salary from Zap.Com and currently devote a
significant portion of their business time to Zapata, where they also hold the
same offices. Both of these officers, however, will devote such time to
Zap.Com's affairs as is required to perform their duties to Zap.Com.

ITEM 2. PROPERTIES

Zap.Com's headquarters are located in Rochester, New York, in space
subleased to it by Zapata on a month-to-month basis. Zapata has advised Zap.Com
that it will not charge rent or other fees for the use of this space until
notice that rent will commence for future periods.

ITEM 3. LEGAL PROCEEDINGS

As of the date of this report, Zap.Com is not involved in any legal
proceedings.

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

No matter was submitted to a vote of Zap.Com's stockholders during the
fourth quarter of Fiscal 2001.

PART II

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

Zap.Com's common stock began trading on November 30, 1999 on the NASD's OTC
electronic bulletin board under the symbol "ZPCM." The OTC electronic bulletin
board is a regulated quotation service that displays real-time quotes, last-sale
prices and volume information in over-the-counter equity securities. The OTC
electronic bulletin board market quotations reflect inter-dealer prices, without
retail mark up, mark down or commission, are not necessarily representative of
actual transactions, and may not be indicative of the value of the common stock
or the existence of an active market.

The following table presents quarterly high and low prices for the
Company's common stock reported by the OTC electronic bulletin board for the
periods indicated:

The level of trading in the Company's common stock has been sporadic and
limited.

The Company has been advised that several NASD member firms are currently
acting as market makers for the Company's common stock. There is no assurance
that an active trading market will develop which will provide liquidity for the
Company's stockholders.

4

As of March 8, 2002, the closing price reported on the OTC electronic
bulletin board for our common stock was $0.05. As of such date there were 1,493
holders of record of our common stock. This number does not include the
stockholders for whom shares are held in a "nominee" or "street" name.

Zap.Com has never declared or paid cash dividends on its common stock and
does not anticipate paying any cash dividends in the foreseeable future. The
payment of any future dividends will be at the discretion of the Board of
Directors and will depend upon a number of factors including future earnings,
the success of its business activities, capital requirements, the general
financial conditions and future prospects of any business that is acquired,
general business conditions and such other factors as the Board of Directors may
deem relevant.

ITEM 6. SELECTED FINANCIAL DATA

The following tables set forth certain selected financial data derived from
Zap.Com's audited financial information for the periods and as of the dates
presented. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included in Item 7 of
this report.

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(1) Zap.Com ceased all Internet operations in December 2000. See Note 1 to the
Company's Financial Statements included in Item 8 of this report.

(2) In November 1999, Zapata and two of its directors invested $10.1 million in
Zap.Com as its initial capitalization. See Note 3 to the Company's Financial
Statements included in Item 8 of this report.

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

FORWARD-LOOKING STATEMENTS

The following discussion of the financial conditions and results of
operations of Zap.Com should be read in conjunction with the financial
statements and notes thereto included elsewhere herein. This discussion contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors,

5

including, but not limited to, those set forth under "Significant Factors That
Could Affect Future Performance and Forward-Looking Statements."

GENERAL

From its inception on April 2, 1998 through November 12, 1999, Zap.Com
operated as a wholly owned subsidiary of Zapata. In November 1999, Zapata and
two of its directors invested $10 million of equity in Zap.Com. On November 12,
1999, Zapata distributed to its stockholders 477,742 shares of Zap.Com common
stock, leaving Zapata as the holder of approximately 98 percent of Zap.Com's
outstanding common stock. On November 30, 1999, Zap.Com's stock began to trade
on NASD's OTC Electronic Bulletin Board under the symbol "ZPCM," establishing
Zap.Com as a separate public company.

During 1999 and 2000, Zap.Com engaged primarily in the research and
investigation of the Internet industry, the development of the Company's
business model, the establishment of strategic relationships to provide Internet
connectivity and technology systems to support the ZapNetwork, the development
of the ZapBox and the Zap.Com homepage, the filing of patent and trademark
applications and the solicitation of web sites to join the ZapNetwork. Zap.Com
also registered shares with the Securities and Exchange Commission, and
registered or qualified for offering the shares for offering and sale in 18
states so that it could offer these shares to web site owners as an incentive to
join the ZapNetwork. Zap.Com also registered 30,000,000 shares under a shelf
registration statement for the purpose of offering shares in business
acquisitions.

On December 15, 2000, the Zap.Com Board of Directors concluded that
Zap.Com's operations were not likely to become profitable in the foreseeable
future and therefore, it was in the best interest of the Company and its
stockholders to cease all Internet operations. Since that date, Zap.Com has
terminated all salaried employees, all signed agreements with web site owners
who joined the ZapNetwork, and all third party contractual relationships entered
into in connection with its Internet business.

During 2001, the Company completed its termination of its Internet
operations. The Company had no other significant activities during 2001 other
than to comply with its reporting requirements under the Securities Exchange Act
of 1934. During the upcoming fiscal year, Zap.Com intends to actively explore
alternatives to enhance stockholder value, including possible acquisitions or
business combinations or the development of new business situations.

RESULTS OF OPERATIONS

For the year ended December 31, 2001, Zap.Com recorded a net loss of
$257,000. Since inception (which commenced on April 2, 1998), Zap.Com has
incurred a cumulative net loss of $8.8 million, including $743,000 in non-cash
charges associated with warrants issued to American Internetwork Sports and all
of the costs associated with the development and implementation of the
ZapNetwork, the ZapBox, and the public registration of Zap.Com's common stock.

For the year ended December 31, 2001 as compared to the year ended December
31, 2000, operations consisted of the following:

Revenues. Zap.Com did not generate any significant revenue for years ended
December 31, 2001 and 2000, nor does it presently have any business from which
it may generate revenue in the future.

Cost of revenues. For the year ended December 31, 2001, the Company
incurred no costs of revenue as a result of ceasing all Internet operations, as
compared to cost of revenues of approximately $1.2 million in the prior year for
costs associated with efforts to generate revenue, such as hosting, bandwidth,
communications, ad delivery, content license and capitalized software
amortization.

Product development. For the year ended December 31, 2001, the Company
incurred no product development expenses as a result of ceasing all Internet
operations, as compared to $146,000 in the prior year for expenses consisting
primarily of website development and maintenance costs.

6

Sales and marketing. For the year ended December 31, 2001, the Company
incurred $18,000 in sales and marketing expenses consisting primarily of
customer fulfillment and media relation costs, as compared to $591,000 in the
prior year. The significant decline in sales and marketing expenses was a result
of ceasing Internet operations.

General and administrative. General and administrative expenses consist
primarily of legal and accounting services, salaries and wages (including costs
allocated by Zapata pursuant to a services agreement), printing and filing
costs, depreciation and amortization, and various other costs. General and
administrative expenses for the year ended December 31, 2001 were $713,000 as
compared to $2.3 million for the year ended December 31, 2000. This decrease is
a direct result of the decision to cease all Internet operations and terminate
all salaried employees. General and administrative expenses for 2001 were
comprised of insurance expense and payroll costs for an officer of the Company
who was retained through the closing process. Effective as of May 1, 2001 and
continuing for the ensuing twelve months, Zapata waived its right under a
services agreement between Zapata and Zap.Com to be reimbursed for the cost of
providing to Zap.Com management services and personnel.

Consulting (income) expense. For the year ended December 31, 2001, the
Company had no consulting income, as compared to $428,000 in income for the
prior year. On October 20, 1999, the Company granted to American Internetwork
Sports Company, LLC stock warrants in consideration for its agreement to provide
sports related consulting services. Pursuant to the December 2000 decision to
cease Internet operations, these warrants became fully vested on December 15,
2000. For the year ended December 31, 2000, the Company revalued the amounts it
had previously recorded as consulting expense to reflect the decline in the fair
market value of Zap.Com's common stock as of December 15, 2000, resulting in
income of $428,000. As the warrants are now fully vested, the Company recorded
no additional income or loss in conjunction with this transaction for the year
ended December 31, 2001.

Loss on disposal of assets. During 2001, the Company disposed of certain
computer equipment no longer needed after ceasing Internet operations and
recognized a loss on the disposal of $24,000. No assets were disposed of in the
prior year.

Impairment of Long-Lived Assets. No assets were deemed impaired during the
year ended December 31, 2001. In 2000, based on the Board resolution to
terminate the ZapNetwork, certain assets were deemed to be impaired and were
written-off. Accordingly, $854,000 of asset impairment was recorded to write off
the remaining net book value of the capitalized software. In addition, a prepaid
license agreement related to the ZapBox was written off for $19,000.

Contract termination (settlement) expenses. During 2001, the Company
favorably settled its disputes over two of its contracts and reversed previous
accruals of $403,000 as income resulting from the settlement amounts being less
than the associated accrued liabilities. The original expenses and accruals were
recorded during the fourth quarter of 2000 after the Board resolution to
terminate Internet operations, and certain contracts entered into by the Company
during its development stage were deemed to have no future value to the company.

Interest income. Interest income is generated on cash reserves which are
invested in short-term U.S. Government Agency securities. Interest earned for
the year ended December 31, 2001 and 2000 was $96,000 and $304,000,
respectively. The decreased interest income for 2001 was primarily a result of
significantly lower interest rates on short-term U.S. Government Agency
securities as compared to rates in 2000, as well as declining cash reserves
available for investment.

For the year ended December 31, 2000 as compared to the year ended December
31, 1999, operations consisted of the following:

For the year ended December 31, 2000, Zap.Com incurred a net loss of $5.0
million which included the benefit of a reduction of a previously recorded
expense for warrants issued to American Internetwork Sports Company, LLC, of
$428,000. See Note 10 to the Company's Financial Statements included in Item 8
of this Report.

7

Revenues. Zap.Com did not generate any significant revenue for Fiscal 2000
and 1999.

Cost of revenues. Zap.Com recorded costs of revenues as those costs
associated with efforts to generate revenue, such as hosting, bandwidth,
communications, ad delivery, content license and capitalized software
amortization. These costs totaled $1.2 million and $141,000 for 2000 and 1999,
respectively. Cost of revenues increased in 2000 from 1999 due to the
amortization of the ZapBox.

Product Development. Product development expenses increased $94,000, from
$52,000 to $146,000 in 1999 and 2000, respectively. These expenses consist
primarily of costs associated with the maintenance of the ZapBox and Zap.Com
websites. The increase in 2000 is a result of having almost a full year of
expense (until the decision to cease operations in December), whereas 1999
included only a partial year's activity.

Sales and Marketing. Sales and Marketing expenses increased $66,000, from
$525,000 for 1999 to $591,000 for 2000. The primary reason for this increase was
a greater focus on recruiting ZapNetwork members and for customer service.

General and administrative. General and administrative expenses consist
primarily of legal and accounting services, salaries and wages (including costs
allocated by Zapata pursuant to a services agreement), printing and filing costs
and various other start-up costs. General and administrative expenses for 2000
increased to $2.3 million from $1.7 million in 1999. This increase was primarily
due to the Company's increased staffing requirements, its incurrence of state
securities registration fees, and increased legal fees, printing costs and
insurance costs. Effective as of May 1, 2000 and continuing for the ensuing
twelve months, Zapata waived its right under a services agreement between Zapata
and Zap.Com to be reimbursed for the cost of providing to Zap.Com management
services and personnel.

Consulting (income) expense. Pursuant to the decision to cease Internet
operations, warrants issued to American Internetwork Sports in payment for
consulting expenses became fully vested on December 15, 2000. The Company
revalued the amounts it had previously recorded as consulting expense to reflect
the decline in the fair market value of Zap.Com's common stock as of that date,
resulting in income of $428,000.

Impairment of Long-Lived Assets. Based on the Board resolution to
terminate the ZapNetwork, certain assets were deemed to be impaired and were
written off during 2000. Accordingly, $854,000 of asset impairment was required
to write off the remaining net book value of the capitalized software. In
addition, a prepaid license agreement related to the ZapBox was written off for
$19,000. No assets were deemed impaired during the year ended December 31, 1999.

Contract Termination Expenses. Based on the Board resolution to terminate
the ZapNetwork, certain contracts entered into by the Company during the
development stage were deemed to have no future value to the Company.
Accordingly, $597,000 of costs were recognized in December of 2000 related to
termination fees and remaining monthly charges under contracts being terminated
by the Company. No such costs were recorded for the year ended December 31,
1999.

Interest Income. Interest income is generated on cash reserves that are
invested in short-term U.S Government Agency securities. Interest earned for
2000 and 1999 was $304,000 and $54,000, respectively. The increase in interest
income was primarily a result of increased interest rates on short-term U.S.
Government Agency Securities as compared to rates in 1999.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2001, Zap.Com has not generated any significant revenue
since its inception. As a result, the Company's primary source of liquidity has
been its initial capitalization and thereafter the interest income generated on
cash reserves invested in short-term US Government Agency securities.

In November 1999, Zapata contributed to Zap.Com $8,000,000 in cash and
forgave $1,000,000 in inter-company debt. Also in November 1999, two Zapata
directors, Malcolm Glazer (who beneficially owns 47 percent of Zapata's
outstanding common stock) and Avram Glazer, contributed $1,100,000 in cash as
payment for 550,000 shares of Zap.Com common stock.

8

Since its inception, the Company has utilized services of the management
and staff and office space of its majority stockholder, Zapata Corporation,
under a shared services agreement that allocated these costs. Since April 30,
2000, Zapata has waived its rights under the services agreements to be
reimbursed these costs. Should Zapata not renew its waiver, Zap.Com may incur
future obligations under the shared services agreement.

Zap.Com currently has effective a shelf registration statement on Form S-1,
covering 30,000,000 of common stock which Zap.Com may issue from time to time as
payment for all or some portion of the purchase price for one or more
acquisitions of companies, businesses or assets. In order to effect an
acquisition, however, Zap.Com may need additional financing. There is no
assurance that any such financing will be available or available on the terms
favorable or acceptable to the Company.

Zap.Com believes that is has sufficient resources to satisfy its existing
and contingent liabilities and its anticipated operating expenses for the next
twelve months. Until such time as a business combination is consummated, Zap.Com
expects these expenses to consist mainly of legal and audit fees and expenses
incurred in connection with its filing obligations as a publicly traded company.
The Company has no commitments for capital expenditures and foresees none,
except for possible future acquisitions.

CASH FLOWS FROM OPERATING ACTIVITIES

Cash used in operating activities was $596,000 for the year ended December
31, 2001 as compared to $3,937,000 for the previous year. Cash used in operating
activities was greater during 2000 because of the focus on growing the Internet
operations of the Company, before the decision to cease all Internet operations.
Cash used in operating activities in 2000 was $3,937,000 as compared to
$2,241,000 in 1999. Cash used in operating activities was greater during 2000
because of the increased focus on growing the business in 2000 after the Initial
Public Offering of the Company's common stock in November of 1999.

CASH FLOWS FROM INVESTING ACTIVITIES

The Company incurred no costs associated with investing activities for the
year ended December 31, 2001 as compared to $836,000 for the prior year. The
decrease is a result of the Company incurring no further capital additions in
2001 after the December 2000 decision to cease all Internet operations. Cash
flows used in investing activities was $836,000 in 2000 as compared to $283,000
in 1999. The increase in 2000 was a result of increased spending on the
development and capitalization of the ZapBox.

CASH FLOWS FROM FINANCING ACTIVITIES

Cash provided by financing activities was $2,000 for the year ended
December 31, 2001, compared to cash used in financing activities of $45,000 for
the prior year. The decrease in cash flows from financing activities represents
the elimination of all intercompany receivables and payables with affiliates.
Cash used in financing activities of $45,000 in 2000 was less than the
$10,103,000 of cash provided by activities in 1999 which was a result of the
Initial Public Offering of the Company's common stock.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141 Business
Combinations" and No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141
requires that all business combinations be accounted for under the purchase
method only and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. SFAS No. 142 requires
that ratable amortization of goodwill be replaced with periodic tests of the
goodwill's impairment and that intangible assets other than goodwill be
amortized over their useful lives. SFAS No. 141 is effective for all business
combinations initiated after June 30, 2001. The provisions of SFAS No. 142 are
effective for all fiscal years beginning after December 15, 2001, and will
therefore be adopted by the Company January 1, 2002. The Company does not
believe the adoption of SFAS No. 141 and No. 142 will have a material effect on
the Company's financial position or its results of operations.
9

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which, as amended, is effective for fiscal
years beginning after June 15, 2000. SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 requires the recognition
of all derivatives as either assets or liabilities in the statement of financial
position and the measurement of those instruments at fair value. The adoption of
SFAS No. 133 did not have a material impact on the Company's financial position
or its results of operations.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements requires management to make
estimates and assumptions that affect amounts reported therein. The estimates
that require management's most difficult, subjective or complex judgments are
described below. The critical judgments impacting the financial statements
include valuation allowances for deferred income taxes and the impairment of
assets. In each situation, management is required to make estimates about the
effects of matters, or future events that are inherently uncertain.
Specifically, in its assessment of impairment of assets, management made
estimates of the fair values based upon forecasted revenues and operations. In
addition, as the Company does not anticipate generating revenues or taxable
income in the foreseeable future, management has reduced its deferred tax assets
to an amount that it believes is more likely than not to be realized. The
Company used what it believes are reasonable assumptions and where applicable,
established valuation techniques in making its estimates.

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

WE HAVE LIMITED ASSETS AND NO SOURCE OF REVENUE.

The Company has limited assets and has had no significant revenue since its
inception, nor will the Company receive any operating revenues until it
completes an acquisition, reorganization or merger or successfully develops a
new business. The Company can provide no assurance that any acquired business
will produce any material revenues for the Company or its stockholders or that
any such business will operate on a profitable basis.

WE HAVE NOT SELECTED A SPECIFIED INDUSTRY IN WHICH TO ACQUIRE OR DEVELOP A
BUSINESS.

To date, the Company has not identified any particular industry or business
in which to concentrate its acquisition efforts. Accordingly, prospective
investors currently have no basis to evaluate the comparative risks and merits
of investing in the industry or business in which the Company may acquire. To
the extent that the Company may acquire a business in a high-risk industry, the
Company will become subject to those risks. Similarly, if the Company acquires a
financially unstable business or a business that is in the early stages of
development, the Company will become subject to the numerous risks to which such
businesses are subject. Although management intends to consider the risks
inherent in any industry and business in which it may become involved, there can
be no assurance that it will correctly assess such risks.

ABSENCE OF SUBSTANTIVE DISCLOSURE RELATING TO PROSPECTIVE NEW BUSINESSES.

Because the Company has not yet identified any assets, property or business
that it may acquire or develop potential investors in the Company will have
virtually no substantive information about any such new business upon which to
base a decision whether to invest in the company. The Company can provide no
assurance that any investment in the Company will not ultimately prove to be
unfavorable. In any event, stockholders will not have access to any information
about any new business until such time as a transaction is completed and the
Company files a report with the Securities and Exchange Commission disclosing
the nature of such transaction and/or business.

IF AN ACQUISITION IS CONSUMMATED, STOCKHOLDERS WILL NOT KNOW ITS STRUCTURE AND
WILL LIKELY SUFFER DILUTION.

Management has had no preliminary contact or discussions regarding, and
there are no present plans, proposals or arrangements to acquire any specific
assets, property or business. Accordingly, it is unclear
10

whether such an acquisition would take the form of an exchange of capital stock,
a merger or an asset acquisition. However, because the Company has limited
resources as of the date hereof, such acquisition is likely to involve the
issuance of stock.

We currently have 1,500,000,000 authorized shares of common stock and
150,000,000 authorized shares of preferred stock. As of the date of this report,
we have 50,004,474 shares of common stock outstanding and no outstanding
preferred stock. We will be able to issue significant amounts of additional
shares of common stock without obtaining stockholder approval, provided we
comply with the rules and regulations of any exchange or national market system
on which our shares are then listed. As of the date of this report, we are not
subject to the rules of any exchange that would require stockholder approval. We
have filed a registration statement authorizing 30,000,000 shares on a shelf
basis for offer and issuance from time to time in connection with future
acquisitions. To the extent we use our common stock in this manner in the
future, existing stockholders will experience dilution in percentage ownership.

As of the date of this report, we have reserved 5,000,000 shares of common
stock for issuance on the exercise of 2,000,000 warrants issued to American
Internetwork Sports and 3,000,000 for options issued or to be issued pursuant to
our 1999 Long-Term Incentive Stock Option Plan. The warrants have an exercise
price of $2.00 per share and became fully vested in December of 2000. The
outstanding options have a weighted average exercise price of $2.00. The
issuance of shares upon the exercise of the above securities may have a dilutive
effect in the future on our common stock, which may adversely affect the price
of our common stock.

MANAGEMENT TO DEVOTE INSIGNIFICANT TIME TO ACTIVITIES OF THE COMPANY.

Members of the Company's management are not required to devote their full
time to the affairs of the Company. Because of their time commitments to Zapata,
as well as the fact that the Company has no business operations, the members of
management anticipate that they will not devote a significant amount of time to
the activities of the Company, except in connection with identifying a suitable
acquisition target or business to develop.

ZAPATA AND ZAP.COM'S OFFICER MAY HAVE CONFLICTS OF INTEREST.

Although the Company has not identified any potential acquisition target or
new business opportunities, the possibility exists that the Company may acquire
or merge with a business or company in which the Company's executive officers,
directors, beneficial owners or their affiliates may have an ownership interest.
A transaction of this nature would present a conflict of interest to those
parties with a managerial position and/or an ownership interest in both the
Company and the acquired entity, and may compromise management's fiduciary
duties to the Company's stockholders. See "Zapata's control and the presence of
interlocking directors and officers create potential conflicts of interest and
could prevent a change of control" discussed below. An independent appraisal of
the acquired company may or may not be obtained in the event a related party
transaction is contemplated.

THERE IS SIGNIFICANT COMPETITION FOR ACQUISITION CANDIDATES.

Management believes that there are numerous companies that are also seeking
merger or acquisition transactions. These entities will present competition to
the Company in its search for a suitable transaction candidate, and the Company
makes no assurance that it will be successful in that search.

THERE IS NO ASSURANCE OF CONTINUED PUBLIC TRADING MARKET AND THE RISK OF BEING
A LOW PRICED SECURITY MAY AFFECT MARKET VALUE OF STOCK.

To date, there has been only a limited public market for our common stock.
Our common stock is currently quoted on the Over the Counter Bulletin Board. As
a result, an investor may find it difficult to dispose of, or to obtain accurate
quotations as to the market value of our stock. In addition, our common stock
may become subject to the low-priced security or so called "penny stock" rules
that impose additional sales practice requirements on broker-dealers who sell
such securities. The Securities Enforcement and Penny Stock Reform Act of 1990
requires additional disclosure in connection with any trades involving a stock
11

defined as a penny stock (generally, according to recent regulations adopted by
the U.S. Securities and Exchange Commission, any equity security that has a
market price of less than $5.00 per share, subject to certain exceptions which
we have been able to take advantage of to date, but which may no longer be
available), including the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith. The regulations governing low-priced or penny stocks sometimes limit
the ability of broker-dealers to sell our common stock and thus, ultimately, the
ability of the investors to sell their securities in the secondary market.

We currently have several National Association of Securities Dealers, Inc.
member broker/dealers who maintain a market in our stock as market makers. There
can be no assurance we will be able to maintain such market makers. If the
number of market makers in our stock declines, the liquidity of our common stock
could be impaired, not only in the number of shares of common stock which could
be bought and sold, but also through possible delays in the timing of
transactions, and lower prices for the common stock than might otherwise
prevail. Furthermore, the lack of market makers could result in persons being
unable to buy or sell shares of the common stock on any secondary market.

ZAPATA'S CONTROL AND THE PRESENCE OF INTERLOCKING DIRECTORS AND OFFICERS
CREATE POTENTIAL CONFLICTS OF INTEREST AND COULD PREVENT A CHANGE OF CONTROL.

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

In addition, our executive officers also are directors, officers or
employees of Zapata and, in most cases, either own, or hold an option to
purchase, equity securities of Zapata. In addition, Malcolm Glazer, who is the
father of our President and Chief Executive Officer, Avram Glazer, controls and
beneficially owns approximately 47 percent of Zapata's outstanding common stock.
As a result, these executive officers have inherent potential conflicts of
interest when making decisions related to transactions between Zapata and us.
Zapata's ability to control matters listed above together with the potential
conflicts of interest of its executive officers who also serve as executive
officers of Zap.Com and our Chairman of the Board could adversely affect the
trading price and liquidity of our common stock. These factors could limit the
price that investors might be willing to pay for our common stock in the future.

WE HAVE LIABILITIES AS A MEMBER OF ZAPATA'S CONSOLIDATED TAX GROUP.

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

BECAUSE WE DO NOT INTEND TO PAY ANY CASH DIVIDENDS ON OUR COMMON STOCK,
HOLDERS OF OUR COMMON STOCK WILL NOT BE ABLE TO RECEIVE A RETURN ON THEIR
SHARES UNLESS THEY SELL THEIR SHARES.

We have paid no dividends on our common stock. We do not anticipate paying
any cash dividends on our common stock in the foreseeable future. Unless we pay
dividends, holders of our common stock will not be able to receive a return on
their shares unless they sell them, which could be difficult unless a more
active

12

market develops in our stock. See Item 5. "Market for the Registrant's Common
Equity and Related Stockholder Matters."

OUR ANTI-TAKEOVER PROVISIONS IN OUR CORPORATE DOCUMENTS MAY HAVE AN ADVERSE
EFFECT ON THE MARKET PRICE OF OUR COMMON STOCK.

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

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

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

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

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

A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK IS ELIGIBLE FOR SALE INTO THE MARKET
AND THIS COULD DEPRESS OUR STOCK PRICE.

Sales of a substantial number of shares of our common stock in the future
could cause the market price of our common stock to decline. As of the date of
this document, we have outstanding 50,004,474 shares of common stock, of which
Zapata owns 48,972,258 shares, Malcolm Glazer owns 707,908 shares, Avram Glazer
owns 50,020 shares and public stockholders own 274,288 shares. In addition, we
have 3,000,000 shares of common stock reserved for issuance under our 1999
Long-Term Incentive Plan and 2,000,000 shares of our common stock reserved for
issuance of shares that may be purchased under the warrants granted to American
Internetwork Sports.

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

We have registered 1,000,000 shares of Zap.Com common stock for resale by
Zapata from time to time under a separate registration statement. We have also
granted Zapata registration rights with respect to all of its shares. These
registration rights effectively allow Zapata to register and publicly sell all
of its shares at any time and to participate as a selling stockholder in future
public offerings by Zap.Com.

The warrants issued to American Internetwork Sports became fully vested
after the December 2000 decision to cease operations. See Note 10 to the
Company's Financial Statements included in Item 8 of this report. All of the
shares issued to American Internetwork Sports upon exercise of the warrants will
be available for public resale under Rule 144 following the expiration of a one
year holding period commencing upon the issuance of shares after the exercise of
the warrants and compliance with the other requirements of Rule 144. Further,
Zap.Com is required to register the shares issued upon exercise of the warrants
on a registration statement on Form S-8, upon the demand of American
Internetwork Sports.

13

In addition, we also intend to file a registration statement on Form S-8
under the Securities Act covering the shares reserved for issuance under the
1999 Long-Term Incentive Plan. This registration statement will also
automatically become effective upon filing and permit unrestricted public resale
of these shares. We have registered on a shelf basis under the registration
statement 30,000,000 shares of our common stock for issuance from time to time
in the future in connection with acquisitions, mergers, other business
combinations. All of the shares issued in connection with these transactions
will be freely tradable. The sale of a substantial amount of these shares into
the market could cause the price of our stock to drop. As a result, these sales
also might make it more difficult for us to sell equity or equity related
securities in the future at a time and price that we deem appropriate.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risks relating to Zap.Com's operations result primarily from changes
in interest rates. Zap.Com invests its cash and cash equivalents in short-term
US Government Agency securities with maturities generally not more than 90 days.

14

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholders' equity (deficit) and cash flows present
fairly, in all material respects, the financial position of Zap.Com Corporation
at December 31, 2001 and 2000, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America. 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 auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

PRICEWATERHOUSECOOPERS LLP

Rochester, New York
March 1, 2002

15

ZAP.COM CORPORATION

BALANCE SHEETS

The accompanying notes are an integral part of these financial statements.
16

ZAP.COM CORPORATION

STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these financial statements.
17

ZAP.COM CORPORATION

STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these financial statements.
18

ZAP.COM CORPORATION

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

The accompanying notes are an integral part of these financial statements.
19

ZAP.COM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 1. BUSINESS AND ORGANIZATION

Zapata Corporation ("Zapata") formed Zap.Com for the purpose of creating
and operating a global network of independently owned web sites. In April 1999,
Zap.Com announced its plan to establish the ZapNetwork by connecting web sites
through a proprietary multi-functional, portal-like Internet banner known as the
ZapBox. Zap.Com intended to distribute advertising and e-commerce opportunities
over this network. From its inception on April 2, 1998 through November 12,
1999, Zap.Com operated as a wholly owned subsidiary of Zapata. In November 1999,
Zapata and two of its directors invested $10 million of equity in Zap.Com. On
November 12, 1999, Zapata distributed to its stockholders 477,742 shares of
Zap.Com common stock, leaving Zapata as the holder of approximately 98 percent
of Zap.Com's outstanding common stock. On November 30, 1999, Zap.Com's stock
began to trade on NASD's OTC Electronic Bulletin Board under the symbol "ZPCM,"
establishing Zap.Com as a separate public company

During 1999 and 2000, Zap.Com engaged primarily in the research and
investigation of the Internet industry, the development of the Company's
business model, the establishment of strategic relationships to provide Internet
connectivity and technology systems to support the ZapNetwork, the development
of the ZapBox and the Zap.Com homepage, the filing of patent and trademark
applications and the solicitation of web sites to join the ZapNetwork.

On December 15, 2000, the Zap.Com Board of Directors concluded that
Zap.Com's operations were not likely to become profitable in the foreseeable
future and therefore, it was in the best interest of the Company and its
stockholders to cease all Internet operations. Since that date, Zap.Com has
terminated all salaried employees, all signed agreements with web site owners
who joined the ZapNetwork, and all third party contractual relationships entered
into in connection with its Internet business. The Company had no other
significant activities during 2001 other than completing the termination of its
Internet operations and complying with its reporting requirements under the
Securities Exchange Act of 1934.

Management believes that it has sufficient resources to satisfy its
existing and contingent liabilities and its anticipated operating expenses for
at least the next twelve months.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying financial statements are presented as if the Company had
existed as a corporation separate from Zapata Corporation for the periods
presented and include the historical assets, liabilities, revenues and expenses
that are directly related to the business that comprised the Company's
operations.

General and administrative expenses reflected in the financial statements
include allocations of certain corporate expenses from Zapata for which
management took into consideration including such factors as personnel, space,
estimates of time spent to provide services, and other appropriate bases.
Management believes the foregoing allocations of these costs were made on a
reasonable basis; however, they do not necessarily equal the costs that would
have been or will be incurred by the Company prospectively. However, Zapata has
waived its rights to receive these reimbursements since May 1, 2000. Costs that
would have been incurred by the Company represent less than 3% of general and
administrative expenses. See Note 10.

The financial information included herein may not necessarily reflect the
financial position and results of operations of the Company in the future or
what the financial position and results of operations of the Company would have
been had it been a separate, stand-alone company during the periods covered.

20

ZAP.COM CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

CASH AND CASH EQUIVALENTS

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

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation of property and
equipment is computed by the straight-line method at rates expected to amortize
the cost of the property and equipment, net of salvage value, over their
estimated useful lives. Estimated useful lives of assets acquired new,
determined as of the date of acquisition are 3-5 years. 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.

INTERNAL USE SOFTWARE

The Company capitalizes software for internal use in accordance with
American Institute of Certified Public Accountants ("AICPA") Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." This standard requires certain direct development
costs associated with internal use software to be capitalized including external
direct costs of material and services and payroll costs for employees devoting
time to the software projects. These costs are amortized over the useful life of
the software beginning when the asset is substantially ready for use. Costs
incurred during the preliminary project stage as well as for maintenance and
training are expensed as incurred. Internal use software is amortized over three
years. As a result of ceasing Internet operations, the Company wrote-off all
internal use software.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company regularly assesses all of its long-lived assets for impairment
when events or circumstances indicate their carrying amounts may not be
recoverable. This is accomplished by comparing the expected undiscounted future
cash flows of the assets with the respective carrying amount as of the date of
assessment. Should aggregate future cash flows be less than the carrying value,
a write-down would be required, measured as the difference between the carrying
value and the fair value of the asset. Fair value is estimated either through
independent valuation or as the present value of expected discounted future cash
flows. If the expected undiscounted future cash flows exceed the respective
carrying amount as of the date of the assessment, no impairment is recognized.

DEFERRED CONSULTING EXPENSE

Deferred consulting expense represents the current cumulative unearned
value of warrants issued to non-employees for consulting services. The Company
accounts for these warrants in accordance with Emerging Issues Task Force
("EITF") 96-18, "Accounting For Equity Instruments That Are Issued To Other Than
Employees For Acquiring, Or In Conjunction With Selling, Goods or Services,"
which requires such transactions to be expensed based on the then current fair
value of the warrants at the end of each reporting period with adjustment of
prior period expense to actual expense at each vesting date.

EARNINGS PER SHARE

Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," requires presentation of basic and diluted loss per share for all
periods presented. Basic loss per share is computed by dividing the net loss by
the sum of the weighted average number of shares of common stock outstanding.

21

ZAP.COM CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Diluted earnings per share is based on the potential dilution that would occur
on exercise or conversion of securities into common stock. Outstanding options
that could potentially dilute basic loss per share were not included in the
computation of diluted net loss per share because to do so would have an
anti-dilutive effect for the periods presented.

START-UP COSTS

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

COST OF REVENUES

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

PRODUCT DEVELOPMENT

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

INCOME TAXES

The Company utilizes the liability method to account for income taxes. This
method requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of existing temporary differences between the
financial reporting and tax-reporting basis of assets and liabilities, and
operating loss and tax credit carry forwards for tax purposes. The Company is
included in Zapata's consolidated U.S. federal income tax return and its income
tax effects are allocated to the Company in proportion to its contribution of
taxable income to consolidated taxable income.

A valuation allowance is provided to reduce deferred tax assets to a level
which, more likely than not, will be realized. Primary factors considered by
management to determine the size of the allowance include the estimated taxable
income level for future years and the limitations on the use of such carry
forwards and expiration dates.

SEGMENTS

Effective January 1, 1999, the Company adopted the provisions of SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The Company has determined that it does not have any separately
reportable business segments as of December 31, 2001 and December 31, 2000.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

RECLASSIFICATION

During 2001, certain reclassifications of prior year information have been
made to conform to the current year presentation. These reclassifications had no
effect on net income.

22

ZAP.COM CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141 Business
Combinations" and No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141
requires that all business combinations be accounted for under the purchase
method only and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. SFAS No. 142 requires
that ratable amortization of goodwill be replaced with periodic tests of the
goodwill's impairment and that intangible assets other than goodwill be
amortized over their useful lives. SFAS No. 141 is effective for all business
combinations initiated after June 30, 2001. The provisions of SFAS No. 142 are
effective for all fiscal years beginning after December 15, 2001, and will
therefore be adopted by the Company January 1, 2002. The Company does not
believe the adoption of SFAS No. 141 and No. 142 will have a material effect on
the Company's financial position or its results of operations.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which, as amended, is effective for fiscal
years beginning after June 15, 2000. SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 requires the recognition
of all derivatives as either assets or liabilities in the statement of financial
position and the measurement of those instruments at fair value. The adoption of
SFAS No. 133 did not have a material impact on the Company's financial position
or its results of operations.

NOTE 3. STOCKHOLDERS' EQUITY

The Company was incorporated in April 2, 1998 as a wholly-owned subsidiary
of Zapata, through the issuance of 1,000 shares of no par value common stock. In
September 1999, Zapata advised the Company of the Zapata Board's intention to
declare a dividend, payable to its stockholders, of one share of Zap.Com common
stock for every 50 shares of Zapata common stock on a record date to be
determined. On October 26, 1999, a record date of November 5, 1999 was declared.
The primary purpose of the distribution was the creation of a public market for
the Company's common stock and future access to public markets.

In November 1999, the Company amended and restated its Articles of
Incorporation to revise its capital structure. Subsequent to the amendment,
Zap.Com's authorized capital stock consisted of: (1) 1,500,000,000 shares of
common stock, par value $.001 per share and (2) 150,000,000 shares of preferred
stock, par value $.01 per share. Also, the Company Board of Directors approved a
49,450 for one stock split immediately prior to the distribution. All share and
per share information has been retroactively restated to reflect this split.

On November 12, 1999, Zapata distributed 477,742 shares of Zap.Com common
stock to its stockholders. Also, on November 12, 1999, Zapata provided the
Company with $9,000,000, including $49,450 to meet the stated capital
requirements of Nevada law to effectuate the 49,450 for one stock split which
occurred immediately prior to the distribution. The contribution consisted of
$8,000,000 in cash and the forgiveness of $1,000,000 of inter-company debt. At
the same time, Malcolm Glazer and Avram Glazer contributed $1,100,000 in
exchange for 550,000 shares of Zap.Com common stock.

On March 3, 2000 the SEC declared the effectiveness of Zap.Com's shelf
registration statement on Form S-1, covering 20,000,000 shares of common stock,
$.001 par value per share. This registration statement also covered up to an
additional 30,000,000 shares of Zap.Com's common stock, $.001 par value per
share to be issued as payment for all or some portion of the purchase price for
one or more acquisitions of companies, businesses or assets complementary to
Zap.Com's existing business.

During April 2000, Zap.Com decided to modify the relationship that it had
previously proposed to potential ZapNetwork members. Zap.Com changed the
compensation to ZapNetwork members to revenue sharing payments based on banner
advertising and participation in the ZapNetwork unique user stock bonus
23

ZAP.COM CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

plan. On May 10, 2000 the SEC declared the effectiveness of the post-effective
amendment to the registration statement on Form S-1 that sets forth this new
distribution plan. Zap.Com accounted for the commitment to issue shares and the
associated expense at their fair value as prescribed by the principles of the
Financial Accounting Standards Board Emerging Issues Task Force Issue No. 96-18,
"Accounting For Equity Instruments That Are Issued to Other Than Employees For
Acquiring, Or In Conjunction With Selling Goods or Services."

On July 25, 2000, the Company entered into a modified ZapNetwork Membership
Agreement with Penn Media that fixed the number of bonus shares to be issued
under the unique user stock bonus plan. The number of shares to be issued was to
equal to 100,000 shares, vesting over 36 months. However, pursuant to an
agreement dated November 28, 2000, the parties agreed to terminate the
aforementioned agreement effective November 10, 2000. The termination resulted
in the issuance of 4,474 shares of common stock to Penn Media.

During December 2000, the Board of Directors resolved to cease the
operations of the Company, effectively terminating the stock bonus plan. Upon
termination, there were no ZapNetwork members who had met the eligibility
requirements to receive the stock bonus. As such, the Company deregistered the
remaining 19,995,526 shares under the plan on January 5, 2001.

As of December 31, 2001 and 2000, the Company had accumulated a deficit of
$8.8 million and $8.5 million, respectively. As the Company currently has no
means by which to generate revenue, the Company will continue to incur losses in
the future.

NOTE 4. ACCRUED LIABILITIES:

Accrued liabilities consist of the following:

NOTE 5. INCOME TAXES

As a result of net operating losses, the Company has not recorded a
provision for income taxes. The components of the deferred tax assets and
related valuation allowance at December 31, 2001 and 2000 are as follows:

The Company believes sufficient uncertainty exists regarding the
realizability of the deferred tax assets such that a full valuation allowance is
required. As of December 31, 2001 and 2000, Zap.Com had $7,410,088

24

ZAP.COM CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

and $7,153,402 of net operating loss carryforwards that expire in 2021 and 2020,
respectively. In the event there is a change of control in the ownership of
Zap.Com, the annual utilization of the net operating losses could be limited.

NOTE 6. LOSS ON DISPOSAL OF ASSETS

During the second quarter of 2001, the Company disposed of certain computer
equipment no longer needed after ceasing Internet operations and recognized a
loss on the disposal of $24,000.

NOTE 7. IMPAIRMENT OF LONG-LIVED ASSETS

Based on the Board resolution to cease Internet operations, certain assets
were deemed to be impaired and were written-off during the fourth quarter of
2000. Accordingly, $854,000 of asset impairment was required to write off the
remaining net book value of the capitalized software. At that time, the
capitalized software had accumulated amortization of $252,817. In addition, a
prepaid license agreement related to the ZapBox was written off for $19,000.

NOTE 8. CONTRACT TERMINATION ACCRUAL

Based on the Board resolution to terminate Internet operations, certain
contracts entered into by the Company during its development stage were deemed
to have no future value to the company. Accordingly, the Company recognized the
expenses and associated accrued liabilities of $597,000 in the fourth quarter of
2000. In the first quarter of 2001, the Company favorably settled its disputes
over two of its contracts. The Company reversed previous accruals of $403,000 as
income resulting from the settlement amounts being less than the associated
accrued liabilities.

NOTE 9. STOCK OPTIONS AND STOCK ISSUANCE PLANS

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

Under the 1999 Plan, 3,000,000 shares of common stock are available for
awards. The 1999 Plan provides for the grant of any or all of the following
types of awards: stock options, stock appreciation rights, stock awards, cash
awards, or other rights or interests. Allocations of awards are made by the
Board of Directors at its sole discretion within the provisions of the 1999
Plan.

Stock appreciation rights are rights to receive, without payment to
Zap.Com, cash or shares of common stock with a value determined by reference to
the difference between the exercise or strike price of the stock appreciation
rights and the fair market value or other specified valuation of the shares at
the time of exercise. Stock appreciation rights may be granted in tandem with
stock options or separately. As of December 31, 2001 and 2000, there were no
stock appreciation rights outstanding.

Stock awards may consist of shares of common stock and may provide for
voting rights and dividend equivalent rights. The Company may specify conditions
for awards, including vesting service and performance conditions. Vesting
conditions may include, without limitation, provision for acceleration in the
case of a change-in-control of Zap.Com, vesting conditions and performance
conditions, including, without limitation, performance conditions based on
achievement of specific business objectives, increases in specified indices and
attaining specified growth measures or rates. As of December 31, 2001 and 2000,
there were no stock awards outstanding.
25

ZAP.COM CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Company issues stock options to executives and key employees that vest
ratably during the first three years after issuance and have five-year terms.
Vesting is contingent upon continued employment with the Company. A summary of
the status of the Company's 1999 Long-Term Incentive Plan is presented below.

Additional information with respect to the outstanding options as of
December 31, 2001 is as follows:

The number of options exercisable and the corresponding weighted average
exercise price was 338,333 and $2.17 at December 31, 2001 and 165,000 and $2.00
at December 31, 2000. No options were exercisable as of December 31, 1999.

The Company has elected to follow the measurement provisions of APB Opinion
No. 25, under which no recognition of compensation expense is required for stock
options granted to employees for which the exercise price equals or exceeds the
fair market value of the stock at the grant date. Options granted in 1999 were
granted prior to the Company's public offering. Accordingly, the Company
determined there was no compensation expense attributable to these options based
on an independent valuation of the Company. All of the options granted in 2000
have an exercise price equal to the fair market value of the stock at the grant
date, and therefore have no associated compensation expense. No options were
granted in 2001.

The Company has elected to follow the disclosure only provisions of SFAS
No. 123, "Accounting for Stock-based Compensation." The Company uses the
Black-Scholes option pricing model with the following weighted-average
assumptions for grants in 2000 and 1999, respectively (excluding options both
granted and forfeited in the same period): risk-free interest rate of 6.58
percent and 5.92 percent, volatility of 351 percent and 0 percent, expected
dividends of 0 percent for both periods, and an expected life of three years for
both periods. The weighted average fair value of options granted was $8.98 and
$0.35 per share for 2000 and 1999, respectively. No options were granted in
2001.

26

ZAP.COM CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Had compensation expense for the 1999 Plan been determined based on fair
value at the grant date consistent with SFAS No. 123, the Company's net loss and
net loss per share (basic and diluted) would have been as follows:

NOTE 10. RELATED PARTY TRANSACTIONS

Since its inception, the Company has utilized the services of the
management and staff of its majority stockholder, Zapata Corporation, under a
shared services agreement that allocated these costs on a percentage of time
basis. On May 1, 2000, and again on May 1, 2001, Zapata Corporation waived its
rights under the services agreement to be reimbursed for these expenses for a
period of one year. No allocations were made during 2001. Total allocations of
these costs were $66,000 and $369,000 for the years ended December 31, 2000 and
1999, respectively.

Zap.Com subleases its office space in Rochester, New York from Zapata
Corporation. Under the sublease agreement, annual rental payments are allocated
on a cost basis. Under the aforementioned May 1, 2000 and 2001 agreements,
Zapata Corporation waived its rights to be reimbursed for rent for a period of
one year. No payments were made during 2001. Total rental payments to Zapata
were $9,000 and $32,000 for the years ended December 31, 2000 and 1999,
respectively.

In 1999, the Company also received server and network equipment from a
related entity to operate its Internet business. The Company recorded the assets
at the cost to the transferor of approximately $40,000. No gain or loss was
recognized on the transaction.

As of and prior to November 12, 1999, Zap.Com had satisfied all of its
startup and offering costs with borrowings from Zapata. On November 12, 1999,
Zapata contributed $8,000,000 in cash and forgave $1,000,000 in intercompany
debt from the Company pursuant to the completion of the distribution.

On October 20, 1999, the Company granted to American Internetwork Sports
Company, LLC stock warrants in consideration for sports related consulting
services. American Internetwork Sports is owned by the siblings of Avram Glazer,
the Company's president and Chief Executive Officer. The Company accounts for
this transaction in accordance with EITF 96-18, which requires the recognition
of expense based on the then current fair value of the warrants at the end of
each reporting period with adjustment of prior period expense to actual expense
at each vesting date. Pursuant to the December 2000 decision to cease the
operations of the Company, these warrants became fully vested. As a result, the
Company recorded the entire cost of $743,000 for all 2,000,000 warrants at the
then market value of the stock.

27

ZAP.COM CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

28

ZAP.COM CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

SCHEDULE II

ZAP.COM CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999

29

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

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Pursuant to General Instruction G on Form 10-K, the information called for
by Item 10 of Part III of Form 10-K is incorporated by reference to the
information set forth in the Company's Information Statement relating to its
2002 Annual Meeting of Stockholders (the "2002 Information Statement") to be
filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), in response to Items 401 and 405 of Regulation S-K
under the Securities Act of 1933, as amended, and the Exchange Act ("Regulation
S-K").

ITEM 11. EXECUTIVE COMPENSATION

Pursuant to General Instruction G of Form 10-K, the information called for
by Item 11 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 2002 Information Statement in response to Item 402
of Regulation S-K, excluding the material concerning the report on executive
compensation and the performance graph specified by paragraphs (k) and (l) of
such Item.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Pursuant to General Instruction G of Form 10-K, the information called for
by Item 12 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 2002 Information Statement in response to Item 403
of Regulation S-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Pursuant to General Instruction G of Form 10-K, the information called for
by Item 13 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 2002 Information Statement in response to Item 404
of Regulation S-K.

PART IV

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

(a) LIST OF DOCUMENTS FILED

(1) Financial Statements

Financial statements, Zap.Com Corporation.

Report of Independent Accountants.

Balance sheets as of December 31, 2001 and 2000.

Statements of operations for the years ended December 31, 2001, 2000, and
1999.

Statements of cash flows for the years ended December 31, 2001, 2000, and
1999.

Statements of changes in stockholders' equity for the years ended
December 31, 2001, 2000, and 1999.

Notes to financial statements.

30

(2) Exhibits

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

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

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

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

(b) CURRENT REPORTS ON FORM 8-K

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

(c) FINANCIAL STATEMENT SCHEDULES

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

31

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

ZAP.COM CORPORATION (REGISTRANT)

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

Dated: March 18, 2002

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.