ZAPATA CORP - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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: 1-4219
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ZAPATA CORPORATION
(Exact name of Registrant as specified in its charter)

NEVADA 74-1339132
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

100 MERIDIAN CENTRE, 14618
SUITE 350 (Zip Code)
ROCHESTER, NY
(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:

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

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. [ ]

As of March 15, 2002, the Registrant had outstanding 2,390,849 shares
common stock, $0.01 par value. As of March 15, 2002, the aggregate market value
of the Registrant's common stock held by non-affiliates of the Company was
$30,365,416, based on the closing price in consolidated trading on that day, for
Zapata's common stock. For the sole purpose of making this calculation, the term
"non-affiliate" has been interpreted to exclude 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
definitive Proxy Statement for its 2002 Annual Meeting of Stockholders, which
the Company plans to file with the Securities and Exchange Commission pursuant
to regulations 14A, on or prior to April 30, 2002, 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

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, Omega
Protein Corporation ("Omega Protein" or "Omega") and Zap.Com Corporation
("Zap.Com") are described under the caption "Part II -- Item 7 Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- 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

In January 2001, Zapata Corporation ("Zapata" or the "Company") completed a
one-for-ten reverse stock split. Accordingly, share and per share amounts have
been retroactively restated for the reverse split.

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

Zapata was incorporated in Delaware in 1954 and was reincorporated in
Nevada in April 1999. The Company's principal executive offices are at 100
Meridian Centre, Suite 350, Rochester, New York 14618.

Zapata is a holding company which has operated primarily in two industry
segments: the Food segment and the Internet segment. Zapata operates its food
related businesses through its 61% owned subsidiary, Omega Protein Corporation
("Omega Protein" or "Omega") and through Viskase Corporation ("Viskase") until
the sale of its stock in that corporation in September 2001. Zapata operated its
Internet related businesses through its 98% owned subsidiary, Zap.Com
Corporation ("Zap.Com") and its wholly owned subsidiary Charged Productions,
Inc. ("Charged Productions" or "Charged"). The Company exited the Internet
businesses in December 2000. During 2001, Zapata and Zap.Com completed the
wind-down of their Internet activities.

Omega Protein produces and markets a variety of products produced from
menhaden (herring-like fish found in commercial quantities in the U.S. coastal
waters of the Atlantic Ocean and Gulf of Mexico), including regular grade and
value added specialty fish meals, crude and refined fish oils and fish solubles.
Omega's fish meal products are used as nutritional feed additives by animal feed
manufacturers and by commercial livestock producers. Omega operates its own
fleet of fishing vessels as well as four processing plants. Omega's crude fish
oil is sold primarily to food producers in Europe, and its refined fish oil
products, which are high in nutritionally desirable Omega-3 fatty acids, are
used in a variety of foods for human consumption, as well as in aquaculture
feeds and certain industrial applications. Fish solubles are sold as protein
additives for animal feed and as organic fertilizers. Omega Protein's stock is
traded on the New York Stock Exchange ("NYSE") under the symbol "OME."

Viskase is a major producer of cellulosic and plastic casings used in
preparing and packaging processed meat products. In August 1995, Zapata acquired
31% of Viskase's outstanding common stock. In June and
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July 1996, Zapata increased its Viskase stock holdings to 38% of Viskase's
outstanding common stock. During September 2001, Zapata sold all of its Viskase
stockholdings for an aggregate price of approximately $59,000 in a private
transaction through a broker. As a result of the sale, Zapata expects to receive
a tax refund of approximately $8.4 million during 2002.

In April 1998, the Company acquired the Internet based magazines Word and
Charged. Subsequently, these webzines were consolidated into Charged
Productions, Inc. ("Charged Productions" or "Charged"), a multi-media production
company which operated www.charged.com, www.sissyfight.com and
www.pixeltime.com. During December 2000, the Company made a strategic decision
to cease the operations of Charged Productions. During April 2001, the Company
completed its sale of Charged Productions to Charged LLC (a limited liability
corporation comprised of former Charged Productions employees) whereby Charged
Productions received 20% of the outstanding equity of Charged LLC in exchange
for certain remaining assets of the original company. Further, as Charged
Productions is unsure of Charged LLC's ability to generate positive cash flows
from its operations, the investment was written down to zero during 2001.

Zapata formed Zap.Com for the purpose of creating and operating a global
network of independently owned web sites. Zap.Com stock is traded on the
over-the-counter market on the NASD's OTC Electronic Bulletin Board under the
symbol "ZPCM." In December 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 Zap.Com and its
stockholders to cease all Internet operations. Since that date, Zap.Com has
terminated all salaried employees and all third party contractual relationships
entered into in connection with its Internet business. Zap.Com plans to explore
various alternatives to maximize the value of Zap.Com's outstanding stock.

In June 2000, Zapata management believed that the non-investment grade debt
market provided an opportunity for the Company to meet the funding requirements
of its Internet business and corporate overhead activities while leveraging its
available funds for future acquisitions. Specifically, Zapata management
believed that this debt would yield sufficient income to support its direct
operations and free-up capital otherwise committed for this purpose for
deployment in future acquisitions. Management decided to sell its non-
investment grade securities during the second and third quarters of 2001. This
sale together with the previous write-down of this debt resulted in an
impairment charge of $11.8 million for 2001. As a result of the sale, the
Company expects to receive a tax refund of approximately $7.9 million during
2002.

Zapata is engaged in the active search for one or more new operating
businesses to acquire. The Company has not limited and does not intend to limit
the scope of its search to any particular industry. Management has invested
substantial time evaluating and considering numerous proposals for possible
acquisition or combination developed by management or presented by investment
professionals, the Company's advisors and others. The Company continues to
consider acquisitions, business combinations, or start up proposals, which could
be advantageous to stockholders. The Company may utilize non-investment grade
securities as a part of an acquisition strategy. Such investments often involve
a high degree of risk and must be considered highly speculative. As of the date
of this report, the Company is not a party to any agreement for the acquisition
of an operating business. There can be no assurance that the Company will be
able to locate and consummate a suitable acquisition or that any acquisitions
which are consummated will ultimately prove to be beneficial to the Company and
its stockholders.

FOOD SEGMENT

OMEGA PROTEIN CORPORATION

Omega Protein was a wholly-owned subsidiary of Zapata until April 1998 when
Omega Protein completed its initial public offering. As of the date of this
report, Zapata holds 14,501,000 shares of Omega Protein common stock, or
approximately 61% of Omega Protein's outstanding common stock. Zapata's Chairman
of the Board and CEO serves as Chairman of the Board of Omega Protein.

Omega's marine protein operations involve the production and sale of a
variety of protein products derived from menhaden, a species of fish found along
the Gulf of Mexico and Atlantic coasts. Omega is the

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largest processor, marketer and distributor of marine products (fish meal) and
fats (fish oil) in the United States. Omega processes several grades of fish
meal (regular or "FAQ" meal and specialty meals), as well as fish oil and fish
solubles. Omega's fish meal products are primarily used as a protein ingredient
in animal feed for poultry, swine, cattle, aquaculture and household pets.
Omega's fish oil is primarily used as an ingredient in margarine and shortening.
Omega's fish solubles are sold primarily to livestock feed manufacturers,
aquaculture feed manufacturers and for use as an organic fertilizer.

Fishing. During 2001, Omega owned a fleet of 65 fishing vessels and 32
spotter aircraft for use in its fishing operations and also leased additional
aircraft where necessary to facilitate operations. During the 2001 fishing
season in the Gulf of Mexico, where the fishing season runs from mid-April
through October, Omega operated 32 fishing vessels and 27 spotter aircraft. The
fishing area in the Gulf is generally located along the Gulf Coast, with a
concentration off the Louisiana and Mississippi coasts. The fishing season along
the Atlantic coast begins in early May and usually extends into December. Omega
operated 10 fishing vessels and 7 spotter aircraft along the Mid-Atlantic coast,
concentrated primarily in and around the Chesapeake Bay. The remaining fleet of
fishing vessels and spotter aircraft are not routinely operated during the
fishing season and are back-up to the active fleet. Subsequent to the Fiscal
1999 fishing season, Omega embarked on a program of cost-cutting measures which
included, among other items, a reduction in the number of fishing vessels and
spotter planes deployed. Since Fiscal 1999, the deployment of fishing vessels
and spotter planes has been reduced by 11 vessels and 7 planes.

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

Processing. During 2001, Omega operated four processing plants, two in
Louisiana, one in Mississippi and one in Virginia, where the menhaden are
processed into fish meal, fish oil and fish solubles. The fish are unloaded from
the fishing vessels into storage boxes and then conveyed into steam cookers. The
fish are then passed through presses to remove most of the oil and water. The
solid portions of the fish are dried and then ground into fish meal. The liquid
that is produced in the cooking and pressing operations contains oil, water,
dissolved protein and some fish solids. This liquid is decanted to remove the
solids and is then put through a centrifugal oil and water separation process.
The separated fish oil is a finished product. The separated water and protein
mixture is further processed through evaporators to recover the soluble protein,
which can be sold as a finished product or added to the solid portions of the
fish for processing into fish meal.

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

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

Customers and Marketing. Most of Omega's marine protein products are sold
directly to about 400 customers by Omega's marketing department, while a smaller
amount is sold through independent sales agents. Product inventory was $29.1
million as of December 31, 2001 versus $28.0 million on December 31, 2000.

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Omega's fish meal is sold primarily to domestic feed producers for
utilization as a high-protein ingredient for the poultry, swine, aquaculture and
pet food industries. Fish oil sales primarily involve export markets where the
fish oil is refined for use as an edible oil.

Omega's products are sold both in the U.S. and internationally.
International sales consist mainly of fish oil sales to Canada, Japan, Mexico
and The Netherlands. Omega's sales in these foreign markets are denominated in
U.S. dollars and not directly affected by currency fluctuations. Such sales
could be adversely affected by changes in demand resulting from fluctuations in
currency exchange rates.

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

Insurance. Omega maintains insurance against physical loss and damage to
its assets, coverage against liabilities to third parties it may incur in the
course of its operations, as well as workers' compensation, United States
Longshoremen's and Harbor Workers' Compensation Act and Jones Act coverage.
Assets are insured at replacement cost, market value or assessed earning power.
Omega's limits for liability coverage are statutory or $50.0 million. The $50.0
million limit is comprised of several excess liability policies, which are
subject to deductibles, underlying limits and exclusions. Omega believes its
insurance coverage to be in such form, against such risks, for such amounts and
subject to such deductibles and self-retentions as are prudent and normal for
its operations. The impact of the September 11, 2001 terrorist attacks, as well
as a general hardening of the world insurance markets, is likely to make Omega's
insurance more costly as various lines of insurance come up for renewal in 2002.
Depending on the magnitude of the increase in insurance premiums, Omega may
elect to increase its deductibles and self-retentions in order to achieve lower
insurance premium costs. These higher deductibles and self-retentions will
expose Omega to greater risk of loss if claims occur.

Competition. The marine protein and oil business is subject to significant
competition from producers of vegetable and other animal protein products and
oil products such as Archer-Daniels Midland, Inc. and Cargill, Inc. In addition,
but to a lesser extent, Omega competes with smaller domestic privately-owned
menhaden fishing companies and international marine protein and oil producers,
including Scandinavian herring processors and South American anchovy and sardine
processors. Many of these competitors have greater financial resources and more
extensive operations than Omega.

Omega competes on price, quality and performance characteristics of its
products, such as protein level and amino acid profile in the case of fish meal.
The principal competition for Omega's fish meal and fish solubles is from other
protein sources such as soybean meal and other vegetable or animal protein
products. Omega believes, however, that these other sources are not complete
substitutes because fish meal offers nutritional values not contained in such
sources. Vegetable fats and oils, such as soybean and palm oils, provide the
primary market competition for fish oil.

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

Regulation. Omega's operations are subject to federal, state and local
laws and regulations relating to the location and periods in which fishing may
be conducted as well as environmental and safety matters. At the state and local
level, certain state and local government agencies have either enacted
legislation and regulations or have the authority to enact with legislation and
regulation to prohibit, restrict or regulate menhaden fishing within their
jurisdictional waters. In January 2002, the State of New Jersey enacted
legislation which extended an existing 1.2 mile no-fishing zone for menhaden an
additional 1.8 miles offshore. Omega historically has caught an immaterial
amount of its fish catch in the newly closed area and believes

5

that this restriction will have no material effect on Omega's operations or
financial results. Omega remains able to conduct its fishing operations off New
Jersey outside this new three-mile limit.

Omega, through its operation of fishing vessels, is subject to the
jurisdiction of the U.S. Coast Guard, the National Transportation Safety Board
and the U.S. Customs Service. The U.S. Coast Guard and the National
Transportation Safety Board set safety standards and are authorized to
investigate vessel accidents and recommend improved safety standards. The U.S.
Customs Service is authorized to inspect vessels at will.

Omega's operations are subject to federal, state and local laws and
regulations relating to the protection of the environment, including the federal
Water Pollution Control Act of 1972, which was significantly modified in 1977 to
deal with toxic water pollutants and re-named as the Clean Water Act, and which
imposes strict controls against the discharge of pollutants in reportable
quantities, and along with the Oil Pollution Act of 1990, imposes substantial
liability for the costs of oil removal, remediation and damages. Omega's marine
protein operations also are subject to the federal Clean Air Act, as amended;
the federal Comprehensive Environmental Response, Compensation, and Liability
Act, which imposes liability, without regard to fault, on certain classes of
persons that contributed to the release of any "hazardous substances" into the
environment; U.S. Coast Guard regulations and the federal Occupational Safety
and Health Act ("OSHA"). In January 2002, the United States Supreme Court ruled
that, in addition to the United States Coast Guard, the Occupational Safety and
Health Administration has the authority to regulate working conditions aboard
certain types of vessels which include Omega's fishing vessels. The eventual
implementation of this ruling (which is expected to occur over a period of
years) is expected to result in additional safety requirements and procedures
for Omega's vessels. It is possible that the costs of these requirements and
procedures could be material.

The OSHA hazard communications standard, the Environmental Protection
Agency community right-to-know regulations under Title III of the federal
Superfund Amendment and Reauthorization Act and similar state statutes require
Omega to organize information about hazardous materials used or produced in its
operations. Certain of this information must be provided to employees, state and
local governmental authorities and local citizens. Numerous other environmental
laws and regulations, along with similar state laws, also apply to the
operations of Omega, and all such laws and regulations are subject to change.

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

Omega's harvesting operations are subject to the Shipping Act of 1916 and
the regulations promulgated thereunder by the Department of Transportation,
Maritime Administration which require, among other things, that Omega be
incorporated under the laws of the U.S. or a state, Omega's chief executive
officer be a U.S. citizen, no more of Omega's directors be non-citizens than a
minority of the number necessary to constitute a quorum and at least 75% of
Omega's outstanding capital stock (including a majority of Omega's voting
capital stock) be owned by U.S. citizens. If Omega fails to observe any of these
requirements, it will not be eligible to conduct its harvesting activities in
U.S. jurisdictional waters. Such a loss of eligibility would have a material
adverse effect on Omega's business, results of operations and financial
condition.

To protect against such loss of eligibility, Omega's Articles of
Incorporation (i) contain provisions limiting the aggregate percentage ownership
by non-citizens of each class of Omega's capital stock to no more than 25% of
the outstanding shares of each such class (the "Permitted Percentage") so that
any purported transfer to non-citizens of shares in excess of the Permitted
Percentage will be ineffective as against Omega for all purposes (including for
purposes of voting, dividends and any other distribution, upon liquidation or
otherwise), (ii) provide for a dual stock certificate system to determine such
ownership pursuant to which certificates representing shares of Company Common
Stock bear legends that designate such certificates as either "citizen" or
"non-citizen" depending on the citizenship of the owner, and (iii) permit
Omega's Board of Directors to make such determinations as may reasonably be
necessary to ascertain such ownership and implement restrictive limitations on
those shares that exceed the Permitted Percentage (the "Excess Shares"). For
example, Omega's Board is authorized, among other things, to redeem for cash
(upon written
6

notice) any Excess Shares in order to reduce the aggregate ownership by
non-citizens to the Permitted Percentage.

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

INTERNET SEGMENT

ZAP.COM 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.

In November 1999, Zapata and two of its directors capitalized Zap.Com with
$10.1 million in equity and Zapata distributed 2% of Zap.Com's outstanding
common stock to Zapata stockholders. On November 30, 1999, Zap.Com's common
stock began trading on the NASD's OTC Electronic Bulletin Board under the symbol
"ZPCM."

During 1999 and 2000, Zap.Com engaged primarily in the research and
investigation of the Internet industry, the development of Zap.Com'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 Zap.Com and its stockholders to cease
all Internet operations. Since that date, Zap.Com has terminated all salaried
employees and all third party contractual relationships entered into in
connection with its Internet business.

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.
Zap.Com 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 Zap.Com will be able to identify or successfully complete any acquisitions.

CHARGED PRODUCTIONS, INC.

In April 1998, the Company acquired the Internet based magazines Word and
Charged. Subsequently, these webzines were consolidated into Charged
Productions, Inc., a multi-media production company which operated
www.charged.com, www.sissyfight.com and www.pixeltime.com. During December 2000,
the Company made a strategic decision to cease the operations of Charged
Productions. During April 2001, the Company completed its sale of Charged
Productions to Charged LLC (a limited liability corporation comprised of former
Charged Productions employees) whereby Charged Productions received 20% of the
outstanding equity of Charged LLC in exchange for certain remaining assets of
the original company. Further, as Charged Productions is unsure of Charged LLC's
ability to generate positive cash flows from its operations, the investment was
written down to zero during the second quarter of 2001.

BUSINESS ACQUISITIONS

Zapata currently is engaged in the active search for one or more operating
businesses. The Company does not presently focus its acquisition efforts solely
on any particular industry. While the Company focuses its attention in the
United States, the Company may investigate acquisition opportunities outside of
the United States when management believes that such opportunities might be
attractive. Similarly, the Company does not yet know the structure of any
acquisition. The Company may pay consideration in the form of cash,
7

securities of the Company or a combination of both. If the Company issues
securities in connection with an acquisition, it could result in significant
dilution to existing stockholders. Depending upon the size and number of
acquisitions, the Company may also borrow money to fund its acquisitions. In
that event, the Company's stockholders would be subject to the risks normally
associated with leveraged transactions, including the inability to service the
debt or the dedication of a significant amount of cash flow to service the debt,
limitations on the Company's ability to secure future financing and the
imposition of certain operating restrictions.

The Company faces intense competition in its search for one or more
operating businesses. In this regard, Zapata competes with strategic buyers,
financial buyers and others who are looking to acquire suitable operating
businesses, many of whom have greater financial resources than the Company or
have greater flexibility in structuring acquisition transactions or strategic
relationships.

As of the date of this report, Zapata is not a party to any agreement for
the acquisition of an operating business. There can be no assurance that the
Company will be able to locate and consummate a suitable acquisition or that any
acquisitions which are consummated will ultimately prove to be beneficial to the
Company and its stockholders.

EMPLOYEES

As of December 31, 2001, Zapata Corporation employed approximately 8
employees who performed management and administrative functions, including
managing the assets of the Company, evaluating potential acquisition candidates,
fulfilling various reporting requirements associated with being a publicly
traded company and various other accounting, tax and administrative matters.

As of December 31, 2001, during their off-season, Omega employed
approximately 432 persons. At August 31, 2001, during the peak of their 2001
fishing season, Omega employed approximately 982 persons. Approximately 131
employees at Omega's Virginia facility are represented by an affiliate of the
United Food and Commercial Workers Union. During the past five years Omega has
not experienced any strike or work stoppage which has had a material impact on
its operations. Omega considers its employee relations to be generally
satisfactory.

As of December 31, 2001, Zap.Com had 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 hold the same
offices. Both of these officers, however, devote such time to Zap.Com's affairs
as is required to perform their duties to Zap.Com.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

During 2001, Zapata operated within two industry segments: the Food segment
and Internet segment. Information concerning revenues, operating results (before
net interest expense, other income and income taxes), identifiable assets,
depreciation and amortization and capital expenditures for the Company's
continuing operations, for each segment is incorporated herein by reference from
Note 20 to the Company's Consolidated Financial Statements included in Item 8 of
this Report.

Costs incurred during 2001 related to Zap.Com and Charged Productions were
primarily associated with wind-down and reporting activities. Accordingly, these
costs were included within the Company's Internet segment for 2001. Since Zapata
sold Charged Productions to former employees during 2001, and Zapata expects
that Zap.Com's costs for the foreseeable future will be primarily relate to
costs associated with being a publicly traded entity, after December 31, 2001
Zap.com and Charged Productions will not be included in the Internet segment.

ITEM 2. PROPERTIES

Zapata leases approximately 3,000 square feet of office space in Rochester,
New York and 5,000 square feet of office space in New York City. Due to the
termination of all Internet operations, Zapata is in the
8

process of finding a third party to sublease the New York City office space,
which was previously used by Charged Productions. Zapata also leases office
space in Houston, Texas, which is subleased to Omega Protein for use as
executive offices.

Omega Protein owns its Reedville, Virginia, Moss Point, Mississippi and
Abbeville, Louisiana plants and the real estate on which they are located
(except for a small leased parcel comprising a portion of the Abbeville
facility). Omega leases from unaffiliated third parties the real estate on which
the Cameron, Louisiana and Morgan City, Louisiana plants are located. Omega also
leases from unaffiliated third parties warehouses and tank space for storage of
its products, generally at terminals located along the Mississippi River and
Tennessee River. Omega's material storage facilities are located in
Guntersville, Alabama, St. Louis, Missouri and East Dubuque, Illinois. In
February 2002, Omega purchased the material storage facility located in St.
Louis, Missouri.

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 for future
periods until further notice.

ITEM 3. LEGAL PROCEEDINGS

LITIGATION

On April 30, 1999, a State District Court in Houston, Texas entered
judgment against Zapata in a lawsuit brought by a former employee which was
commenced on April 1, 1998. The former employee claimed that he was entitled to
the value of options for approximately 240,000 shares (24,000 shares subsequent
to the reverse stock split) 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
pre-judgment interest. Zapata then appealed, and on March 15, 2001, the Court of
Appeals for the 14th District at Houston issued an opinion reversing the jury
verdict in favor of the former employee and rendering judgment in favor of
Zapata. On January 10, 2002, the Texas Supreme Court denied the former
employee's petition for review.

A non-operating wholly-owned subsidiary of Zapata, Energy Industries, Inc.,
was named as a defendant in three case commenced in 1996 and 1997 pending in the
83rd Judicial District Court of Upton County, Texas involving the death of one
individual and personal injuries to two others. The cases resulted from an
explosion and fire at a gas processing plant in Upton County caused by the
failure of a valve cover. Zapata was named as a defendant in one of the cases.
The owners of the plant have also filed a cross-claim against Energy Industries
for property damage and lost profits resulting from the explosion and fire.
Plaintiffs and the cross-plaintiff owners base their claim on a theory of
manufacturing or design defect of the valve cover. Plaintiffs seek compensatory
damages. Zapata and Energy Industries deny liability in each of the lawsuits,
and have vigorously contested these matters and intend to vigorously defend
against these actions. In January 2002, Zapata's primary insurance carrier for
these lawsuits, for the first time, notified it that it did not believe that
Zapata and Energy Industries had primary insurance coverage for the losses
arising out of these incidents. The insurance carrier had been providing for the
defense of these actions and had not reserved its rights with respect to that
defense. The insurance carrier has not yet discontinued providing for the
defense of these actions or formally reserved its rights with respect to that
defense or formally indicated that it would not provide coverage for any loss
arising out of these lawsuits. Zapata has disputed these assertions that there
is no primary insurance coverage. A loss of primary insurance coverage could
jeopardize excess coverage that Zapata or Energy Industries has for these
claims. These cases involve plaintiffs with very serious injuries, including
death. While the results of any ultimate resolution of these lawsuits cannot be
predicted, in the opinion of the Company's management, based upon discussions
with defense counsel, any losses resulting from these matters will not have a
material adverse effect on Zapata's results of operations, cash flow or
financial position.

Zapata is involved in litigation relating to claims arising out of its past
and current operations in the normal course of business. Zapata maintains
insurance coverage against such potential ordinary course claims in an amount in
which it believes to be adequate. While the results of any ultimate resolution
cannot be
9

predicted, in the opinion of Zapata's management, based upon discussions with
counsel, any losses resulting from these matters will not have a material
adverse effect on Zapata's results of operations, cash flow or financial
position.

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

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

PART II

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

Zapata's common stock is listed on the New York Stock Exchange. The high
and low sales prices for the common stock, as reported in the consolidated
transactions reporting system, for each quarterly period for the last two fiscal
years, are shown in the following table. The following stock prices reflect the
one-for-ten reverse stock split effective January 30, 2001.

Zapata has not declared any dividends in the last two Fiscal years. The
Company intends to use all or a significant portion of its cash assets in the
acquisition of new operating businesses or for the repurchase of stock as
discussed below. See "Item 1 -- Description of Business -- Business
Acquisitions." In deciding whether to declare dividends, the Company's Board of
Directors will consider the Company's operating results, cash flow, financial
condition, capital requirements, general business condition of its future
operating businesses and such other factors, as the Board deems relevant. The
rights of the holders of common stock to receive dividends or other payments
with respect thereto in the future will be subject to the prior and superior
rights of holders of Zapata's Preferred Stock and Preference Stock then
outstanding.

During 1998, Zapata's Board of Directors approved a stock repurchase
program pursuant to which Zapata may repurchase up to 5.0 million additional
shares of its own outstanding common stock from time to time. The authorized
number of shares for repurchase was reduced to 500,000 shares as a result of the
Company's one-for-ten reverse stock split discussed below. 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 purposes. As of the date of this report, Zapata has not made any
repurchases pursuant to this authorization and there can be no assurance that
any such repurchases will be made. Zapata reserves the right to discontinue the
repurchase program at any time.

In January 2001, Zapata's Board of Directors approved a one-for-ten reverse
stock split. Accordingly, share and per share amounts have been retroactively
restated for the reverse split. The reverse stock split was effective as of
January 30, 2001 and as of that date, the Company's authorized capital stock was
reduced to 16.5 million shares of common stock, par value $0.01 per share,
200,000 shares of preferred stock and 1.8 million shares of preference stock.
The preferred and preference shares are undesignated "blank check shares." As a
result of the reverse stock split, the Company's outstanding common stock was
reduced to 2,390,849 on that date.

As of March 18, 2002, there were approximately 4,853 holders of record of
common stock. This number does not include the stockholders for whom shares are
held in a "nominee" or "street" name.

10

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain selected historic consolidated
financial information of the Company for the periods and as of the dates
presented and should be read in conjunction with the Company's Consolidated
Financial Statements and the related notes thereto included in Item 8 of this
Report and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in Item 7 of this Report. All amounts are in
thousands, except for per share income (loss) from operations and cash dividends
paid.

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

(1) Based on adverse non-investment grade market conditions and the sale of the
Company's non-investment grade securities during the second and third
quarters of 2001, the Company recognized impairment charges of approximately
$11.8 million. As a result of the sale, the Company expects to receive a tax
refund of approximately $7.9 million during 2002.

(2) Zapata management sold the Company's Viskase stock in September 2001. As a
result of the sale, the Company expects to receive a tax refund of
approximately $8.4 million during 2002.

(3) In connection with the termination of its Internet businesses in December
2000, Zap.Com recorded the necessary charges to write down applicable
investments in long-lived assets (which consisted mainly of its capitalized
software costs) to fair value, and to record estimated liabilities,
including costs associated with the termination of various contracts. These
charges totaled $1.5 million. In addition, Charged Productions incurred a
one-time charge of approximately $434,000 related to asset write-downs and
approximately $182,000 related to contract termination expenses.

11

(4) On February 6, 2001, the Company sold its interest in non-investment grade
debt of Davel Communications, Inc. for approximately $1.6 million. As such,
at December 31, 2000 the Company recorded an impairment charge of
approximately $3.7 million to adjust the investment to market value. See
Note 8 to the Company's Consolidated Financial Statements included in Item 8
of this Report. In addition, Management deemed the decline in the fair value
of the Company's investment in Decora Industries to be "other than
temporary" following Decora's announcement that it had filed for protection
under Chapter 11 of the U.S. Bankruptcy Code. In connection with this
impairment, the Company recognized a loss of approximately $9.5 million
during 2000.

(5) During 2000, Omega Protein recorded inventory write-downs of $18.1 million
for market declines in the inventory values of Omega Protein's fish meal and
fish oil.

(6) On December 21, 1998, Zapata's Board of Directors approved a change in the
Company's fiscal year end from September 30 to December 31, which became
effective January 1, 1999.

(7) In November 1997, Omega Protein closed the two acquisitions in which it
acquired two processing plants and related assets. Omega Protein accounted
for both acquisitions as purchases.

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

(9) In September 1997, Omega Protein disposed of its Venture Milling animal
blending protein business.

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

The following is a discussion of the Company's financial condition and
results of operations. This discussion should be read in conjunction with the
Company's Consolidated Financial Statements included in Item 8 of this Report.
This discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below in "Significant Factors
That Could Affect Future Performance and Forward-Looking Statements," as well as
those discussed in this section and elsewhere in this report.

GENERAL

Zapata is a holding company which has operated primarily in two industry
segments: the food segment and the Internet segment. Zapata operates its food
related businesses through its 61% owned subsidiary, Omega Protein and through
Viskase until the Company sold its Viskase stock in September 2001. Zapata
operated its Internet related businesses through its 98% owned subsidiary,
Zap.Com and its wholly owned subsidiary Charged Productions, Inc. until the
Company exited the Internet businesses in December 2000. Zapata's consolidated
financial statements represent the combination of the financial statements of
Zapata, Omega Protein, Zap.Com, and until April 2001, Charged Productions.

During 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. Zapata reports Omega Protein's results of operations on a consolidated
basis.

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. In September 2001, Zapata sold its Viskase stock for an
aggregate price of approximately $59,000 in a private transaction through a
broker. As a result of the sale, the Company expects to receive a tax refund of
approximately $8.4 million during 2002.

In April 1998, the Company acquired the Internet based magazines Word and
Charged. Subsequently, these webzines were consolidated into Charged
Productions, Inc., a multi-media production company which operated
www.charged.com, www.sissyfight.com and www.pixeltime.com. During December 2000,
the Company made a strategic decision to cease the operations of Charged
Productions. During April 2001, the

12

Company completed its sale of Charged Productions to Charged LLC (a limited
liability corporation comprised of former Charged Productions employees) whereby
Charged Productions received 20% of the outstanding equity of Charged LLC in
exchange for certain remaining assets of the original company. Further, as
Charged Productions is unsure of Charged LLC's ability to generate positive cash
flows from its operations, the investment was written down to zero during the
second quarter of 2001.

In November 1999, Zapata and two of its directors capitalized Zap.Com with
$9.0 and $1.1 million, respectively, in equity to fund its Internet based
business plan. On November 12, 1999, Zapata distributed to its stockholders 2%
of Zap.Com's outstanding stock or 477,742 shares. On November 30, 1999,
Zap.Com's common stock began trading on the NASD's OTC Electronic Bulletin Board
under the symbol "ZPCM."

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 Zap.Com and its
stockholders to cease all Internet operations. Since that date, Zap.Com has
terminated all salaried employees and all third party contractual relationships
entered into in connection with its Internet business. 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.

Through June 2000, Zapata had invested its excess cash reserves in U.S.
Government agency securities and cash equivalents. In June 2000, Zapata
management believed that the non-investment grade debt market provided an
opportunity for the Company to meet the funding requirements of its Internet
business and corporate overhead activities while leveraging its available funds
for future acquisitions. Specifically, Zapata management believed that this debt
would yield sufficient income to support its direct operations and free-up
capital otherwise committed for this purpose for deployment in future
acquisitions. Based on adverse non-investment grade market conditions and the
sale of the Company's non-investment grade securities during the second and
third quarters of 2001, the Company recognized a realized loss of approximately
$11.8 million during 2001. As a result of the sale, the Company expects to
receive a tax refund of approximately $7.9 million during 2002.

RESULTS OF OPERATIONS

ZAPATA CONSOLIDATED RESULTS OF OPERATIONS

2001-2000

Zapata reported consolidated net income of $4.4 million on $98.8 million in
consolidated revenues in 2001 as compared to a consolidated net loss of $26.0
million on $84.1 million in consolidated revenues in 2000. Increased
consolidated revenues and consolidated income resulted primarily from the
improved performance of Omega Protein, the termination of the Company's Internet
operations in 2000, and the recognition of a benefit from income taxes, all of
which was partially offset by realized losses on investments and a reduction in
interest income.

The following presents a more detailed discussion of the consolidated
operating results:

Revenues. Consolidated revenues increased from $84.1 million in 2000 to
$98.8 million in 2001. This increase was primarily attributable to higher
selling prices of Omega Protein's fish meal and fish oil, combined with a 43.8%
increase in sales volumes of fish oil as compared to 2000. Selling prices for
fish meal and fish oil products increased by 17.5% and 37.7% in 2001 and 2000,
respectively. The higher sales volumes of Omega's fish oil products were due
primarily to a 48.5% increase in oil yields from the 2001 fishing effort as
compared to the previous year. Omega attributes the higher fish meal and fish
oil selling prices to diminished global fish meal and fish oil inventories.

Cost of revenues. Zapata's consolidated cost of revenues for the year
ended December 31, 2001 was $84.7 million, a $362,000 decrease, or 0.4%, from
$85.0 million (excluding the $18.1 million inventory write-down) in Fiscal 2000.
Cost of sales as a percentage of revenues was 85.7% for 2001 as compared to
101.1% in 2000 (excluding the inventory write-down). The 15.4% decrease in cost
of sales as a percentage of revenues

13

was due primarily to a 17.5% and 37.7% increase in the selling price of Omega's
fish meal and fish oil products, respectively, along with a 43.8% increase in
sales volume of Omega's fish oil.

Product development. There were no product development costs for the year
ended December 31, 2001, as compared to $1.5 million of such costs in the prior
year. This decrease is due to the termination of the Company's Internet
operations in December 2000.

Selling, general and administrative. Selling, general, and administrative
expenses decreased $3.2 million or 20.0%, from $15.8 million in 2000 to $12.6
million in 2001. This decrease was primarily due to termination of the Company's
Internet operations in December of 2000 and a reduction in staffing and related
employee costs at Omega, partially offset by Omega's recognition of $1.4 million
in receivables due from an insurance company as uncollectible due to the
insurance company's bankruptcy filing.

Impairment of long-lived assets. For the year ended December 31, 2001, the
Company recorded $232,000 in impairment of long-lived assets, consisting
primarily of the write-down of Charged Productions, Inc.'s investment in Charged
Productions LLC to zero. As a result of the termination of the Company's
Internet operations in 2000, $1.3 million of assets were deemed to be impaired
as of December 31, 2000.

Contract termination (settlement) expense. Based on the decision to
terminate Internet operations in December of 2000, Charged Productions and
Zap.Com recorded expenses and associated accrued liabilities for cost associated
with exiting the business totaling $779,000. These expenses related primarily to
Zap.Com's costs associated with certain contracts entered into by Zap.Com during
its development stage that were deemed to have no future value. During 2001,
Zap.Com favorably settled its disputes over two of its contracts. Accordingly,
Zap.Com reversed previous accruals of $403,000 into income resulting from the
settlement amounts being less than the associated accrued liabilities.

Interest income, net. Net interest income decreased $3.9 million or 52.5%
from net interest income of $7.4 million in 2000 to $3.5 million in 2001. This
decrease was a result of significantly lower interest rates on short-term U.S.
Government Agency securities as compared to rates in 2000, as well as Omega
Protein incurring more interest expense during the current year. Omega incurred
net interest expense of $485,000 in 2001 as compared to $293,000 in the prior
year. The increase in net interest expense at Omega was primarily due to a
reduction of interest income as a result of lower returns on investments. Also,
in 2001, the Company received approximately $1.1 million of interest income
earned on the Company's non-investment grade securities as opposed to
approximately $2.4 million 2000.

Realized loss on non-investment grade securities. Realized loss on
non-investment grade securities for the year ended December 31, 2001 was $11.8
million as compared to $13.2 million for the previous year. Management decided
to sell its non-investment grade securities during the second and third quarters
of 2001, resulting in a realized loss of $11.8 million in 2001. For 2000, the
$13.2 million in realized losses relates primarily to "other than temporary"
write-downs of the non-investment grade debt held in the Company's available for
sale portfolio.

Income taxes. The Company recorded benefit for income taxes of $12.8
million in 2001 as compared to $12.5 million in 2000. The benefit of $12.8
million in 2001 resulted from management's decision sell the Company's
non-investment grade securities and its interest in Viskase stock during the
second and third quarters of 2001, partially offset by Omega's tax provision.
The benefit of $12.5 million in 2000 was primarily the result of net operating
losses incurred by Omega Protein and Zapata. Depending on a number of factors,
the Company could incur a personal holding company tax in the future. See Part
II -- Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Significant Factors That Could Affect Future
Performance and Forward-Looking Statements."

Minority interest. Minority interest reflects the outside equity ownership
of Zapata's subsidiaries of approximately 39% in Omega Protein and approximately
2% in Zap.Com. In 2001, minority interest was a $1.5 million reduction of
Zapata's share in the net income of Omega Protein, offset by a reduction in
Zapata's share in the net loss of Zap.Com. In 2000, minority interest was a $6.6
million reduction of Zapata's share of the net losses incurred by Omega Protein
and Zap.Com.

14

2000-1999

Zapata reported a consolidated net loss of $26.0 million on $84.1 million
in consolidated revenues in 2000 as compared to a consolidated net loss of $20.3
million on consolidated revenues of $93.7 million in 1999. The 2000 net loss was
primarily attributable to an operating loss by Omega Protein, operating losses
and impairment charges by the Company's Internet operations, and investment
impairment charges by Zapata on non-investment grade debt securities, partially
offset by interest income.

The following presents a more detailed discussion of the consolidated
operating results:

Revenues. 2000 revenues decreased $9.5 million to $84.1 million, or 10.2%,
from $93.7 million in 1999. The decrease in revenues from 1999 to 2000 was
mainly attributable to lower selling prices of Omega Protein's fish meal and
fish oil. Fish meal prices and fish oil prices declined 7.3% and 20.0%,
respectively, as compared to 1999. Sales volume for Omega Protein's fish oil
decreased 32.1% during 2000 as compared to 1999. Sales volume for Omega
Protein's fish meal increased 12.8% during 2000 as compared to 1999. Omega
Protein attributes the decrease in selling prices to low cyclical feed cost
affecting the protein industry. Zapata's Internet operations did not have
significant revenue for 2000 or 1999.

Cost of revenues. Cost of revenues, including depreciation, amortization
and an inventory write-down for 2000 totaled $103.2 million, a decrease of $2.5
million from $105.7 million in 1999. Cost of sales as a percentage of revenue
was 122.6% and 112.8% for the years ended December 31, 2000 and December 31,
1999, respectively. The increase in cost of sales as a percentage of revenues
was primarily due to continued market declines on the inventory values of Omega
Protein's fish meal and fish oil which resulted in an inventory write-down of
$18.1 million and $18.2 million in 2000 and 1999, respectively. The increase is
also due to decreases in Omega Protein's selling prices for fish meal and fish
oil as discussed above. Per ton cost of sales were 1.3% higher in 2000 as
compared to 1999, due to a 38.0% lower fish oil yield in 2000 creating higher
cost inventories. Cost of revenues for Zapata's Internet operations were $1.2
million and $141,000 in 2000 and 1999, respectively. This increase was primarily
due to Zap.Com's amortization of the ZapBox and the development of the
ZapNetwork.

Product Development. Product development costs decreased $1.4 million or
48.5% from 1999 to 2000. Product development costs consisted mainly of
activities at Charged Productions associated with business development as well
as Zap.Com software development costs. The decrease was mainly due to a large
decrease in spending at Zap.Com during 2000 as compared to 1999.

Selling, general and administrative expenses. Selling, general and
administrative expenses remained constant for 2000. As a percentage of revenues,
selling, general and administrative expenses were approximately 18.8% and 17.8%
for 2000, and 1999, respectively. Selling, general and administrative expenses
for those Internet operations totaled $4.3 million and $6.2 million during 2000
and 1999, respectively. Included in selling, general and administrative expenses
is a benefit of $428,000 for 2000 and an expense of $1.2 million related to
consulting expenses incurred under an agreement between Zap.Com and American
Internetwork Sports Company, LLC.

Impairment of long-lived assets. Pursuant to the termination of Charged
Productions and Zap.Com certain assets were deemed to be impaired as of December
31, 2000. These charges for asset impairment totaled $1.3 million in 2000.
Impairment costs for 1999 related to the discontinued utilization of certain
in-line processing facilities at Omega Protein's Morgan City plant.

Interest income, net. Net interest income increased $2.2 million or 42.2%
from net interest income of $5.2 million in 1999 to $7.4 million in 2000. This
increase was mainly due to approximately $2.4 million of interest income earned
on the Company's non-investment grade securities that the Company purchased to
provide funding for its direct operations. This was partially offset by a
decrease in interest income recognized by Omega Protein. Omega had net interest
income of $614,000 in 1999 compared to net interest expense of $293,000 in 2000.
This decrease in net interest income resulted from Omega Protein's reduction in
cash and cash equivalents available for investment purposes during 2000 compared
to 1999.

15

Realized loss on non-investment grade securities. Realized loss on
non-investment grade securities for 2000 consisted mainly of the write-down to
market value of the non-investment grade debt held in the Company's available
for sale portfolio. The impairment for that portion of the unrealized loss of an
individual security is required to be recognized as a realized loss in the
accounting period when the holder determines that such portion of the decline in
the market value is "other than temporary." Temporary declines in the market
value of Zapata's debt securities held to maturity do not affect Zapata's
carrying value of such securities, since Zapata has the ability and the intent
to hold these investments to maturity, at which time their full face value is
expected to be received at no loss to Zapata. Temporary fluctuations in the
market value of available for sale securities are reflected in stockholders'
equity as unrealized appreciation or depreciation net of applicable deferred
federal income taxes; however, any decline in the value of the security below
its cost considered to be "other than temporary" is reflected as a realized loss
in Zapata's income statement. Once an investment is written down to reflect an
"other than temporary" decline, the write-down establishes a new cost basis for
the security.

For 2000, Zapata had "other than temporary" write-downs related to the debt
instruments of Davel Communications, Inc. and Decora Industries, Inc. The
Company sold its Davel Communications debt instruments on February 6, 2001 at an
amount significantly below its carrying value. As a result of the sale, this
investment was deemed impaired as of December 31, 2000 resulting in an
impairment charge of approximately $3.7 million. Management deemed the decline
in the fair value of the Company's investment in Decora Industries to be "other
than temporary" following Decora's announcement that it had filed for protection
under Chapter 11 of the U.S. Bankruptcy Code. In Connection with this
impairment, the Company recognized a loss of approximately $9.5 million
resulting in a remaining book value of approximately $1.2 million.

Other (expense) income, net. Other expense decreased to $906,000 in 2000
from $3.2 million in 1999. This decrease was primarily the result of recording a
$3.3 million expense in 1999 to reserve against potential costs associated with
a judgment against the Company on a claim for breach of employment contract make
by a former Zapata employee. See "Part I Item 3. Legal Proceedings."

Income taxes. The Company recorded a tax benefit of $12.5 million
representing an effective tax rate of 28% as compared to a benefit of $5.8
million and an effective rate of 18% in the prior year. The current year benefit
was primarily the result of net operating losses incurred by Omega Protein and
Zapata. This net benefit includes a downward adjustment to deferred tax assets.
Adjustments are mainly attributable to assets that management believes, more
likely than not, will not be realized.

Minority Interest. Minority interest reflects the outside equity ownership
of Zapata's subsidiaries of approximately 39% in Omega Protein and approximately
2% in Zap.Com. In 2000, minority interest was a $6.6 million reduction of
Zapata's share of the net losses incurred by Omega Protein and Zap.Com. Minority
interest was recorded for Zap.Com's results since the November 12, 1999
distribution of Zap.Com shares by Zapata to Zapata stockholders. In 1999,
minority interest represented $5.8 million reduction of Zapata's share of Omega
Protein's net income for the period.

LIQUIDITY AND CAPITAL RESOURCES

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 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 that 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 current source of liquidity is its cash, cash equivalents and
short-term investments and the interest income it earns on its investments.
Zapata expects this to continue to be a source of liquidity until it
16

effects an acquisition. Zapata's investments consist of U.S. Government agency
securities and cash equivalents. At December 31, 2001, the Company's cash, cash
equivalents and short-term investments were $96.4 million (including $21.8
million attributable to Omega Protein) as compared to $74.6 million (including
$7.4 million attributable to Omega Protein) as of the previous year. The
decrease in Zapata Corporation's cash, cash equivalents and short-term
investments was mainly attributable to a decrease in interest rates during 2001
as compared to 2000.

Through June 2000, Zapata had invested its excess cash reserves in U.S.
Government agency securities and cash equivalents. In June 2000, Zapata
management believed that the non-investment grade debt market provided an
opportunity for the Company to meet the funding requirements of its Internet
business and corporate overhead activities while leveraging its available funds
for future acquisitions. Specifically, Zapata management believed that this debt
would yield sufficient income to support its direct operations and free-up
capital otherwise committed for this purpose for deployment in future
acquisitions. Based on the Company's decision to terminate its Internet
operations and adverse non-investment grade market conditions, management
decided to sell its non-investment grade securities during the second and third
quarters of 2001. These sales resulted in losses from which the Company expects
to receive a tax refund of approximately $7.9 million during 2002. Also in 2001,
the Company sold its investment in Viskase and expects to receive an associated
tax refund of approximately $8.4 million during 2002. See Item 7A "Quantitative
and Qualitative Disclosures about Market Risk." See also Note 8 to the Company's
Consolidated Financial Statements included in Item 8 of this Report.

In addition to its cash, cash equivalents, investments and interest income,
Zapata has a potential secondary source of liquidity in its publicly traded
securities of Omega Protein and Zap.Com. 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. 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.

At December 31, 2001, Zapata had $16.8 million in consolidated
indebtedness, all of which was Omega Protein's indebtedness. Zapata has not
guaranteed nor otherwise agreed to be liable for the repayment of this debt.

Zapata's liquidity needs are primarily for operating expenses, litigation
and insurance reserves, possible stock repurchases and acquisitions. Zapata also
intends to invest a significant portion of its cash assets in operating
businesses as soon as practicable. To pay for or fund these acquisitions, 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. See Item 1
"Descriptions of Business -- Business Acquisitions."

17

The following tables summarizes information about Zapata's consolidated
contractual cash obligations and other commercial commitments (in thousands) as
of December 31, 2001 and the effect such obligations are expected to have on its
consolidated liquidity and cash flow in future periods:

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

(1) As of December 31, 2001, Omega had no outstanding borrowings outstanding
under the $20.0 million Credit Facility other than for $1.9 million in
standby letters of credit.

Because Zapata does not guarantee or otherwise assume any liability for
Omega Protein or Zap.Com or have any investment commitments to either Omega
Protein or Zap.Com, it is useful to separately review the cash obligations of
Zapata exclusive of Omega and Zap.Com ("Zapata Corporate"). The following table
summarizes information about Zapata Corporate's contractual cash obligations (in
thousands) as of December 31, 2001, and the effects such obligations are
expected to have on Zapata Corporate's liquidity and cash flow in future
periods:

Zapata's management believes that these liabilities have no material impact
on Zapata Corporate's liquidity and capital resources. As of the date of this
report, Zapata Corporate had no other commercial commitments which may impact
its capital resources and liquidity.

In the absence of unforeseen developments, Zapata believes that it has
sufficient liquidity to fund its operating expenses and other operational
requirements at least for the 12 months following the date of this report.

18

SUMMARY OF CASH FLOWS

The following table summarizes Zapata's consolidated cash flow information
(in thousands):

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

Consolidated cash provided by operating activities increased in 2001
primarily due to Omega Protein's generation of net income during the year as
opposed to a significant loss recognized in the prior year. In addition, during
December 2000, Zapata ceased the operations of Charged Productions, Zap.Com and
all other Internet operations. These decisions provided an increase to cash
flows provided by operating activities during 2001 as opposed to 2000 by
eliminating the expenses associated with these operations.

Consolidated cash used in operating activities decreased in 2000 primarily
due to a reduction in inventory purchases and receivable levels at Omega Protein
as compared to the prior year.

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

Consolidated cash provided by investing activities increased in 2001
primarily due to Zapata's reduction in purchases of short-term investments,
Zapata's lack of purchases of non-investment grade securities during 2001 as
compared to 2000 and Omega Protein's reduction in capital expenditures during
the current year.

Consolidated cash used in investing activities decreased during 2000
primarily due to Zapata's receipt of proceeds from maturities of short-term
investments as compared to 1999 when there were no such proceeds.

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

Consolidated net cash provided by financing activities increased primarily
due to Omega Protein's borrowings during 2001 as compared to no borrowings
during 2000, partially offset by Omega's principal payments on borrowings.

Consolidated net cash used in financing activities increased during 2000
primarily due to Omega's lack of borrowings during 2000 as compared to 1999,
partially offset by Omega's lack of purchases of treasury shares during 2000 as
compared to 1999 and the lack of issuance of common stock by Zap.Com which
occurred during 1999.

Because Zapata's cash management activities are separate and distinct from
those of Omega Protein and Zap.Com, it is useful to separately review Zapata
Corporate's cash flows separately. The following table summarizes this cash flow
information (in thousands):

19

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

Zapata Corporate's increase in net cash provided by operating activities
during 2001 as compared to 2000 was primarily due to the termination of
operations at Charged Productions during December 2000, partially offset by a
reduction in interest income during 2001.

Zapata Corporate's cash used in operating activities decreased during 2000
as compared to 1999 primarily due to an increase in interest income during 2000
as compared to 1999, and a decrease in funding of Charged Productions during
2000 as compared to 1999.

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

Zapata Corporate's net cash provided by investing activities increased
during 2001 as compared to 2000 primarily due to the reduction in purchases of
short-term investments, the increase in proceeds from maturities of short-term
investments, and the lack of purchases of non-investment grade securities during
2001 as compared to 2000.

Zapata Corporate's net cash used in investing activities decreased during
2000 as compared to 1999 primarily due to the lack of proceeds from the
maturities of short-term investments during 1999 as compared to 2000, partially
offset by the purchase of long-term investments during 2000.

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

Zapata Corporate had no cash provided by (used in) financing activities
during 2001 or 2000.

Zapata Corporate's net cash used in financing activities during 1999 was
primarily due to its capital contribution to Zap.Com.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 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, and the provisions of SFAS No. 142
are effective for all years beginning after December 15, 2001. The Company does
not believe that the adoption of SFAS No. 141 and 142 will have a material
impact on the Company's financial position or its results of operations.

The Company adopted the provisions of Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognized in Financial Statements," on January 1, 2001. The
implementation of the provisions of SAB No. 101 did not have an impact on the
Company's financial position or 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.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires that obligations associated with
the retirement of a tangible long-lived asset to be recorded as a liability when
those obligations are incurred, with the amount of the liability initially
measured at fair value. Upon initially recognizing a liability for an asset
retirement obligation, an entity must capitalize the cost by recognizing an
increase in the carrying amount of the related long-lived asset. Over time, the
20

liability is accreted to its present value each period, and the capitalized cost
is depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. The provisions of SFAS No. 143 will be
required to be adopted by the Company in Fiscal 2003. The Company has not
determined what impact, if any, this statement will have on its financial
position or its results of operations.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses the
accounting model for long-lived assets to be disposed of by sale and resulting
implementation issues. This statement requires that those long-lived assets be
measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations. This
statement is effective for financial statements issued for fiscal years
beginning after December 15, 2001. The Company has not determined what impact,
if any, this statement will have on its financial position or its results of
operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of Zapata's financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States of America. The preparation of these 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. We believe that the critical judgments
impacting the financial statements include:

- Litigation reserves,

- Valuation allowances for deferred income taxes,

- Omega's deferral of off-season costs

- Omega's lower-of-cost-or-market inventory analysis, and

- Omega's accounting for self-insurance retentions

The establishment of litigation reserves requires judgments concerning the
ultimate outcome of pending litigation against the Company. In applying
judgment, management utilizes opinions and estimates obtained from outside legal
counsel.

The Company may reduce its deferred tax assets to an amount that it
believes is more likely than not to be realized. In so doing, the Company
estimates future taxable income in determining if any valuation allowance is
necessary.

Inventory is stated at the lower of cost or market. Omega Protein's fishing
season runs from mid-April to the first of November in the Gulf of Mexico and
from the beginning of May into December in the Atlantic. Government regulations
preclude Omega Protein from fishing during the off-seasons.

Omega Protein's inventory cost system considers all costs associated with
an annual fish catch and its processing, both variable and fixed and including
both costs incurred during the off-season and during the fishing season. Omega
Protein's costing system allocates cost to inventory quantities on a per unit
basis as calculated by a formula that considers total estimated inventoriable
costs for a fishing season (including off-season costs) to total estimated fish
catch and the relative fair market value of the individual products produced.
Omega Protein adjusts the cost of sales, off-season costs and inventory balances
at the end of each quarter based on revised estimates of total inventoriable
costs and fish catch. Omega Protein's lower-of-cost-or-market-value analyses at
year-end and at interim periods compare the total estimated per unit production
cost of Omega's expected production to the projected per unit market prices of
the products. The impairment analyses involve estimates of, among other things,
future fish catches and related costs, and expected commodity prices for the
fish products. These estimates, which management believes are reasonable and
supportable, involve estimates of future activities and events which are
inherently imprecise and for which actual results may differ.

21

During the off-seasons, in connection with the upcoming fishing seasons,
Omega Protein incurs costs (i.e., plant and vessel related labor, utilities,
rent and depreciation) that are directly related to Omega's infrastructure.
These costs accumulate in inventory and are applied as elements of the cost of
production of Omega Protein's products throughout the fishing season ratably
based on Omega's monthly fish catch and the expected total fish catch for the
season.

As mentioned previously, Omega Protein carries insurance for certain losses
relating to its vessels and Jones Act liabilities for employees aboard its
vessels (collectively, "Vessel Claims Insurance"). The typical Vessel Claims
Insurance policy contains an annual aggregate deductible ("AAD") for which Omega
remains responsible, while the insurance carrier is responsible for all
applicable amounts which exceed the AAD. Omega Protein provides reserves for
those portions of the ADD for which Omega remains responsible by using an
estimation process that considers Omega Protein, Inc. specific and industry data
as well as Omega Protein management's experience assumptions and consultation
with outside counsel. Omega Protein management's current estimated range of
liabilities related to such cases is based on claims for which Omega's
management can estimate the amount and range of loss. Omega Protein has recorded
the minimum estimated liability related to those claims, where there is a range
of loss. As additional information becomes available, Omega will assess the
potential liability related to its pending litigation and revise its estimates.
Such revisions in estimates of the potential liability could materially impact
Omega Protein's results of operation and financial position.

SEASONAL AND QUARTERLY RESULTS

Omega's menhaden harvesting and processing business is seasonal in nature.
Omega generally has higher sales during the menhaden harvesting season (which
includes the second and third quarter of each year) due to increased product
availability, but prices during the fishing season tend to be lower than during
the off-season. As a result, Omega's quarterly operating results have fluctuated
in the past and may fluctuate in the future. In addition, from time to time
Omega defers sales of inventory based on worldwide prices for competing products
that affect prices for their products which may affect comparable period
comparisons. See Note 21 to the Company's Consolidated Financial Statements
included in Item 8 of this Report.

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

Zapata believes that its results of operations, cash flows and financial
condition could be negatively impacted by certain risks and uncertainties,
including, without limitation, the risks and uncertainties identified in
Zapata's other public reports and filings made with the SEC, press releases and
public statements made by authorized officers of Zapata from time to time and
those risks and uncertainties set forth below.

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

22

- Risks associated with the personal holding company penalty tax. Section
541 of the Internal Revenue Code of 1986, as amended (the "IRC"),
subjects a corporation which is a "personal holding company," as defined
in the IRC, to a 39.6% penalty tax on undistributed personal holding
company income in addition to the corporation's normal income tax.
Personal holding company income is comprised primarily of passive
investment income plus, under certain circumstances, personal service
income. Zapata could become subject to the penalty tax if (i) 60% or more
of its adjusted ordinary gross income is personal holding company income
and (ii) 50% or more of its outstanding common stock is owned, directly
or indirectly, by five or fewer individuals at any time during the last
half of the taxable year. As of the date of this report, the Company
believes that five or fewer of its stockholders hold 50% or more of its
outstanding common stock for purposes of IRC Section 541. Accordingly,
the Company could become subject to this tax on its income tax return for
the tax year ended September 30, 2002 to the extent it has undistributed
personal holding company income for such year unless the ownership
interest of its top five stockholders falls below 50% before April 1,
2002. As of the date of this report, management believes that it is
unlikely that the ownership interest of its top five stockholders will
fall below this threshold before April 1, 2002. There can be no
assurance, however, that Zapata can avoid this tax which may impact its
cash flows, results of operations and financial condition.

- Risk that our officers and directors exert substantial influence over
Zapata. Members of our Board of Directors and our executive officers
together with members of their families and entities that may be deemed
affiliates of or related to such persons or entities, beneficially own
approximately 47% of our outstanding common shares. Accordingly, these
stockholders may be able to elect all members of our Board of Directors
and determine the outcome of certain corporate actions requiring
stockholder approval, such as any future issuances of common stock or
other securities, merger and acquisition decisions, declaration of
dividends, and the election of directors. This level of ownership may
have a significant effect in delaying, deferring, or preventing a change
in control of Zapata and may adversely affect the voting and other rights
of other holders of our common shares.

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

- Risks related to future changes in accounting and reporting practices of
Zapata and any equity investments which it may make could adversely
affect Zapata's results of operations, cash flows and financial
condition.

- Risks associated with pursuing potential acquisitions. These acquisitions
could be material in size and scope and since 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. In any event depending upon
the size and structure of the acquisitions, stockholders may not have the
opportunity to vote on the transaction, or access to any information
about any new business until such time as a transaction is completed and
the Company files a report with the SEC disclosing the nature of such
transaction and/or business. While the Company continues to search for
appropriate acquisition opportunities, there is no assurance that it will
be successful in identifying suitable acquisition opportunities. If the
Company does identify any potential acquisition opportunity, there is no
assurance that the acquisition will be consummated, and if the
acquisition does occur, there is no assurance that it will be successful
in enhancing the Company's business or will increase the Company's
earnings. The Company faces significant competition for acquisition
opportunities, which may inhibit its ability to complete suitable
transactions or increase the cost that must be paid. Future acquisitions
could also divert substantial management time, result in short term
reductions in earnings or special transactions or other charges and may
be difficult to integrate with existing operations or assets. The may, in
the future, issue additional shares of common stock or other securities
in connection with one or more acquisitions, which may dilute our
stockholders.
23

Risks associated with Omega Protein, including:

- Omega's ability to meet its raw material requirements through its annual
menhaden harvest, which is subject to fluctuation due to natural
conditions over which Omega has no control, such as varying fish
population, adverse weather conditions and disease.

- The impact on Omega if its spotter aircraft are prohibited or restricted
from operating in their normal manner during Omega's fishing season. For
example, as a direct result of the September 11, 2001 terrorist attacks,
the Secretary of Transportation issued a federal ground stop order that
grounded certain aircraft (including Omega's fish-spotting aircraft) for
approximately nine days. This loss of spotter aircraft coverage severely
hampered Omega's ability to locate menhaden fish during this nine-day
period and thereby reduced its amount of saleable product.

- The impact on the prices for Omega's products of worldwide supply and
demand relationships over which Omega has no control and which tend to
fluctuate to a significant extent over the course of a year and from year
to year. The products that influence the supply and demand relationship
are world supplies of fish meal made from other fish species, palm oil,
soy meal and oil, and other edible oils.

- The impact of a violation by Omega of federal, state and local laws and
regulations relating to menhaden fishing and the protection of the
environment and the health and safety of its employees or of the adoption
of new laws and regulations, or stricter interpretations of existing laws
or regulations that materially adversely affect Omega's business.

- The impact on Omega if it cannot harvest menhaden in U.S. jurisdictional
waters if Omega fails to comply with U.S. citizenship ownership
requirements.

- Risks inherent in Omega's venture into the sale of refined,
non-hydrogenated menhaden oil for consumption in the U.S., including the
unproven market for this product.

- Fluctuations in Omega's quarterly operating results due to the
seasonality of Omega's business and Omega's deferral of sales of
inventory based on worldwide prices for competing products.

- The ability of Omega to retain and recruit key officers and qualified
personnel, vessel captains and crewmembers.

- Risks associated with the strength of local currencies of the countries
in which its products are sold, changes in social, political and economic
conditions inherent in foreign operations and international trade,
including changes in the law and policies that govern foreign investment
and international trade in such countries, changes in U.S. laws and
regulations relating to foreign investment and trade, changes in tax or
other laws, partial or total expatriation, currency exchange rate
fluctuations and restrictions on currency repatriation, the disruption of
labor, political disturbances, insurrection or war and the effect of
requirements of partial local ownership of operations in certain
countries.

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

- In the future Omega may undertake acquisitions, although there is no
assurance this will occur. Further, there can be no assurance that Omega
will be able to profitably manage future businesses it may acquire or
successfully integrate future businesses it may acquire into Omega
without substantial costs, delays or other problems which could have a
material adverse effect on Omega's business, results of operations and
financial condition.

Risks associated with Zap.Com, including:

- Risks associated with the future results of Zap.Com, including its lack
of a source of revenue, its failure to identify a particular industry in
which to concentrate its acquisition efforts, the risks associated with

24

any new business which is ultimately acquired, the absence of substantive
disclosure relating to prospective new businesses, the limited amount of
time which Zap.Com's management plans to devote to its business,
potential conflicts of interest between Zapata and Zap.Com's officers and
directors, lack of assurance of a continued public trading market, the
risks associated with being a low priced security, potential liabilities
as a member of Zapata's consolidated tax group, because Zap.Com does not
intend to pay any cash dividends on their common stock, holders of their
common stock will not be able to receive a return on their shares unless
they sell their shares, anti-takeover provisions in their corporate
documents may have an adverse effect on the market price of their common
stock, a substantial amount of their common stock is eligible for sale
into the market and this could depress their stock price, the competition
that Zap.Com faces in pursuing a new acquisition which may inhibit its
ability to complete suitable transactions or increase the cost that must
be paid and the limited resources that Zap.Com has to devote to an
acquisition.

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

Through June 2000, Zapata had invested its excess cash reserves in U.S.
Government agency securities and cash equivalents. In June 2000, Zapata
management believed that the non-investment grade debt market provided an
opportunity for the Company to meet the funding requirements of its Internet
business and corporate overhead activities while leveraging its available funds
for future acquisitions. Zapata defines non-investment grade debt to include
debt rated BB+ or lower as well as non-rated loans. Specifically, Zapata
management believed that this debt would yield sufficient income to support its
direct operations and free-up capital otherwise committed for this purpose for
deployment in future acquisitions. Based on the Company's decision to terminate
its Internet operations and adverse non-investment grade market conditions,
management decided to sell its non-investment grade securities during the second
and third quarters of 2001.

Zapata's investment grade securities include obligations of the U.S.
Government or agencies thereof guaranteed by the U.S. Government, certificates
of deposit and money market deposits. In addition, Omega Protein holds
commercial paper with a rating of A-2 or P-2.

As of December 31, 2001, Zapata held $96.4 million in cash, cash
equivalents, and investment grade securities and no non-investment grade debt.
Changes in interest rates affect the investment income the Company earns on its
investment grade securities and, therefore, impacts its cash flows and results
of operations. Due to the short duration and conservative nature of these
instruments, the Company does not believe that the value of these instruments
has a material exposure to interest rate risk.

In the normal course of business, Omega's financial condition is exposed to
minimal market risk associated with interest rate movements on their borrowings.
A one percent increase or decrease in the levels of interest rates on variable
rate debt would not result in a material change to Omega's results of
operations.

Although Omega sells products in foreign countries, all of Omega's revenues
are billed and paid for in US dollars. As a result, Omega's management does not
believe that their company is exposed to any significant foreign country
currency exchange risk, and they do not utilize market risk sensitive
instruments to manage exposure to this risk.

25

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of Zapata Corporation:

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of Zapata
Corporation and its subsidiaries at December 31, 2001 and 2000, and the results
of their operations and their 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 8, 2002

26

ZAPATA CORPORATION

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

The accompanying notes are an integral part of the consolidated financial
statements.
27

ZAPATA CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

The accompanying notes are an integral part of the consolidated financial
statements.
28

ZAPATA CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

The accompanying notes are an integral part of the consolidated financial
statements.
29

ZAPATA CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

The accompanying notes are an integral part of the consolidated financial
statements.
30

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BUSINESS AND ORGANIZATION

Zapata Corporation ("Zapata" or the "Company") is a holding company which
since April 1998 has operated primarily in two industry segments: the food
segment and the Internet segment. Zapata operates its food related businesses
through its 61% owned subsidiary, Omega Protein Corporation ("Omega Protein" or
"Omega") (formerly known as Marine Genetics Corporation and Zapata Protein,
Inc.) and through Viskase Corporation ("Viskase") until the sale of its stock in
that corporation. Zapata operated its Internet related businesses through its
98% owned subsidiary, Zap.Com Corporation ("Zap.Com") and its wholly owned
subsidiary Charged Productions, Inc. ("Charged Productions" or "Charged"). The
Company exited the Internet businesses in 2000.

Omega Protein produces and markets a variety of products produced from
menhaden (herring-like fish found in commercial quantities in the U.S. coastal
waters of the Atlantic Ocean and Gulf of Mexico) including regular grade and
value added specialty fish meals, crude and refined fish oils and fish solubles.
Omega's fish meal products are used as nutritional feed additives by animal feed
manufacturers and by commercial livestock producers. Omega operates its own
fleet of fishing vessels as well as four processing plants. Omega's crude fish
oil is sold primarily to food producers in Europe, and its refined fish oil
products, which are high in nutritionally desirable Omega-3 fatty acids, are
used in a variety of foods for human consumption, as well as in aquaculture
feeds and certain industrial applications. Fish solubles are sold as protein
additives for animal feed and as organic fertilizers. Omega Protein is engaged
in the marine protein business and its stock is traded on the New York Stock
Exchange ("NYSE") under the symbol "OME."

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. During September 2001, Zapata sold its 5,877,304 shares of
common stock for an aggregate price of approximately $59,000 in a private
transaction through a broker.

In April 1998, the Company acquired the Internet based magazines Word and
Charged. Subsequently, these webzines were consolidated into Charged
Productions, Inc. ("Charged Productions" or "Charged"), a multi-media production
company which operated www.charged.com, www.sissyfight.com and
www.pixeltime.com. During December 2000, the Company made a strategic decision
to cease the operations of Charged Productions. During April 2001, the Company
completed its sale of Charged Productions to Charged LLC (a limited liability
corporation comprised of former Charged Productions employees) whereby Charged
Productions received 20% of the outstanding equity of Charged LLC in exchange
for certain remaining assets of the original company. Further, as Charged
Productions is unsure of Charged LLC's ability to generate positive cash flows
from its operations, the investment was written down to zero during 2001.

Zap.Com was in the Internet industry and its stock is traded on the
over-the-counter market on the NASD's OTC Electronic Bulletin Board under the
symbol "ZPCM." In December 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 Zap.Com 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.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

The consolidated financial statements include Zapata Corporation and its
wholly and majority-owned domestic and foreign subsidiaries (collectively,
"Zapata" or the "Company"). Entities where Zapata can exercise significant
influence, but not control, are accounted for under the equity method of
accounting.

31

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Whether or not Zapata exercises significant influence with respect to a company
depends on an evaluation of several factors including, among others,
representation on the company's board of directors and ownership level,
generally 20%-50% interest in the voting securities of the company including
voting rights associated with the Company's holdings in common, preferred and
other convertible instruments in the company. All significant intercompany
accounts and transactions have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS

The Company invests certain of its excess cash in government and corporate
debt instruments. All highly liquid investments with original maturities of
three months or less are considered to be cash equivalents. The recorded amounts
for cash equivalents approximate fair market value due to the short-term nature
of these financial instruments.

SHORT-TERM INVESTMENTS

The Company invests certain of its excess cash in government debt
instruments. All highly liquid investments with original maturities of greater
than three months but not longer than one year are considered short-term
investments, available for sale. Accrued interest receivable is recorded on
short-term investments so that the original cost plus accrued interest
approximates fair market value due to the short-term nature of these
investments. As such, no holding gains or losses are recorded as a separate
component of other comprehensive (loss) income.

INVENTORIES

Inventory is stated at the lower of cost or market. Omega Protein's fishing
season runs from mid-April to the first of November in the Gulf of Mexico and
from the beginning of May into December in the Atlantic. Government regulations
preclude Omega Protein from fishing during the off-seasons.

Omega Protein's inventory cost system considers all costs associated with
an annual fish catch and its processing, both variable and fixed, and including
both costs incurred during the off-season and during the fishing season. Omega
Protein's costing system allocates cost to inventory quantities on a per unit
basis as calculated by a formula that considers total estimated inventoriable
costs for a fishing season (including off-season costs) to total estimated fish
catch and the relative fair market value of the individual products produced.
Omega Protein adjusts the cost of sales, off-season costs and inventory balances
at the end of each quarter based on revised estimates of total inventoriable
costs and fish catch. Omega Protein's lower-of-cost-or-market-value analyses at
year-end and at interim periods compares the total estimated per unit production
cost of Omega's expected production to the projected per unit market prices of
the products. The impairment analyses involve estimates of, among other things,
future fish catches and related costs, and expected commodity prices for the
fish products. These estimates, which management believes are reasonable and
supportable, involve estimates of future activities and events which are
inherently imprecise and for which actual results may differ.

During the off-seasons, in connection with the upcoming fishing seasons,
Omega Protein incurs costs (i.e., plant and vessel related labor, utilities,
rent, repairs, and depreciation) that are directly related to Omega's
infrastructure. These costs accumulate in inventory and are applied as elements
of the cost of production of Omega Protein's products throughout the fishing
season ratably based on Omega's monthly fish catch and the expected total fish
catch for the season.

LONG-TERM INVESTMENTS

Under the criteria set forth in Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115"), debt and marketable equity securities are

32

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

required to be classified in one of three categories: trading,
available-for-sale, or held-to-maturity. The Company's investments in debt
securities at December 31, 2000 were classified under SFAS 115 as available-
for-sale. Such securities were recorded at fair value and unrealized holding
gains and losses, net of the related tax effect, if any, were not reflected in
earnings but were reported as a separate component of other comprehensive (loss)
income until realized. At each reporting date, the Company considered whether
market value declines below the cost of available for sale or held to maturity
securities are "other than temporary." If deemed "other than temporary" such
declines would be recognized as realized losses. Realized gains and losses are
determined on the specific identification method and are reflected in income.

ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS

The Company accounts for impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of " which was issued in March 1995. SFAS No. 121 requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the book value of the asset may not be recoverable. The Company
evaluates at each balance sheet date whether events and circumstances have
occurred that indicate possible operational impairment. In accordance with SFAS
No. 121, the Company uses an estimate of the future undiscounted net cash flows
of the related asset or asset grouping over the remaining life in measuring
whether its operating assets are recoverable.

PROPERTY, PLANT AND EQUIPMENT

Property and equipment are recorded at cost and depreciated over the
estimated useful lives of the assets using the straight-line method. Estimated
useful lives of assets acquired, determined as of the date of acquisition, are
as follows:

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.

PENSION PLANS

Annual costs of pension plans are determined actuarially based on SFAS No.
87, "Employers' Accounting for Pensions." The Company's policy is to fund its
pension plans at amounts not less than the minimum requirements of the Employee
Retirement Income Security Act of 1974. In Fiscal 1999, the Company adopted SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." SFAS No. 132 revised and standardized the disclosure requirements for
pensions and other postretirement benefit plans to the extent practicable. It
did not change the measurement or recognition of these plans.

COMPREHENSIVE INCOME

The Company adopted SFAS No. 130, "Reporting Comprehensive Income" in 1999
which established standards for the reporting and display of comprehensive
income and its components in a full set of comparative general-purpose financial
statements. SFAS 130 requires net unrealized holding gains or losses, which
prior to adoption were reported separately in stockholders' equity, to be
included in other comprehen-

33

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

sive income (expense). The adoption of SFAS 130 resulted in revised and
additional disclosures but had no effect on the financial position, results of
operations or liquidity of the Company.

REVENUE RECOGNITION

Omega Protein recognizes revenue for the sale of its products when title
and rewards of ownership to its products are transferred to the customer, which
occurs upon shipment.

ADVERTISING COSTS

The costs of advertising are expensed as incurred in accordance with
Statement of Position 93-7 "Reporting on Advertising Costs."

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. Prior to the
completion of the Omega Protein initial public offering in April 1998, Omega
Protein was included in Zapata's consolidated U.S. federal income tax return and
its income tax effects were reflected on a separate return basis for financial
reporting basis. Since this offering, Omega Protein has filed a separate income
tax return for itself and its subsidiaries. Zap.Com will continue to be included
in Zapata's consolidated U.S. federal income tax return for as long as Zapata's
ownership interest is above 80%.

USE OF ESTIMATES

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

CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of invested excess cash and
Omega Protein's trade accounts receivable. Currently, the Company invests the
majority of its excess cash in U.S. Government Agency Securities with maturities
of less than one year, and, therefore has significantly reduced its future
exposure to market risk.

In addition, Omega Protein has cash deposits concentrated primarily in one
major bank. Also, Omega had Certificates of Deposit and commercial quality grade
investments rated A-2 P-2 or better with companies and financial institutions.
As a result of the forgoing, Omega believes that credit risk in such investments
is minimal.

Omega's customer base generally remains consistent from year to year. Omega
performs ongoing credit evaluations of its customers and generally does not
require material collateral. Omega maintains reserves for potential credit
losses and such losses have historically been within management's expectations.

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.

34

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3. ACCOUNTS RECEIVABLE

Accounts receivable as of December 31, 2001 and 2000 are summarized as
follows:

NOTE 4. INVENTORIES

Inventories as of December 31, 2001 and 2000 are summarized as follows:

During 2001, Omega Protein incurred no significant write-downs of its
inventory. During 2000 and 1999, Omega Protein provided $18.1 million and $18.2
million, respectively, in write-downs of the value of its fish meal and fish oil
product inventories produced during each of those fishing seasons. The inventory
write-downs were made necessary due to market prices Omega Protein either
received or expected to receive for its products having declined to a level
below Omega's cost basis in those products.

NOTE 5. SHORT-TERM INVESTMENTS

Short-term investments as of December 31, 2001 and 2000 are summarized as
follows:

35

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Interest rates on these investments ranged from 1.83% -- 2.37% and
5.65% -- 6.53% at December 31, 2001 and 2000, respectively. The Time Deposit CD
was collateral for a letter of credit the Company carried for certain insurance
coverages, which was no longer required as of December 31, 2001.

NOTE 6. OTHER ASSETS

Other assets as of December 31, 2001 and 2000 are summarized as follows:

Omega Protein's amortization expense for fishing nets amounted to $732,000,
$720,000, and $874,000 for the years ended December 31, 2001, 2000, and 1999,
respectively.

Omega carries insurance for certain losses relating to its vessels and
Jones Act liability for employees aboard its vessels (collectively, "Vessel
Claims Insurance"). The typical Vessel Claims Insurance policy contains an
annual aggregate deductible ("AAD") for which Omega remains responsible, while
the insurance carrier is responsible for all applicable amounts which exceed the
AAD. It is Omega's policy to accrue current amounts due and record amounts paid
out on each claim. Once payments exceed the AAD, Omega records an insurance
receivable for a given policy year.

For the period from October 1, 1998 to March 31, 2000, Omega placed its
Vessel Claims Insurance coverage with HIH Casualty and General Insurance, Ltd.,
an insurance company that is part of HIH Insurance Limited, the second largest
insurance company in Australia ("HIH"). In April 2001, HIH petitioned a court in
Australia to place it in provisional liquidation. Omega estimates, based on
previous payments made by Omega and its existing reserves for open claims for
the period covered by HIH, that HIH owes approximately $2.2 million either to
Omega or on its behalf. This amount could be adjusted upward or downward as
additional claims and their corresponding reserves become finalized.

Omega has put the trustees in the Australian liquidation proceedings on
notice of its claims under their insurance policy. However, based on the early
nature of the proceedings, Omega believes that the ultimate outcome of the
recovery against HIH cannot be assured at this time and that it is probable that
a portion of these receivables will not be collectible. Accordingly, at December
31, 2001, the allowance for doubtful accounts applicable to the HIH receivable
was $1.4 million.

On December 27, 2001, Omega entered into a contract to set forth the terms
and conditions of a purchase of a 60,000 square foot material storage facility
in St. Louis, Missouri. As part of the agreement, Omega placed $600,000 as
deposit pending the executed Deed of Trust. The Deed of Trust was executed and
delivered in February 2002.

36

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7. PROPERTY AND EQUIPMENT

Property and equipment, net as of December 31, 2001 and 2000 are summarized
as follows:

Depreciation expense for 2001, 2000 and 1999 was $8.6 million, $8.5 million
and $8.0 million, respectively.

NOTE 8. LONG-TERM INVESTMENTS, AVAILABLE FOR SALE

The Company held no available for sale securities as of December 31, 2001.
As of December 31, 2000, the Company held approximately $13.4 million in
available for sale corporate debt, which included an unrealized loss of
approximately $4.4 million. These bonds were considered non-investment grade and
were purchased at a large discount to par value. Available for sale securities
consisted of the following at December 31, 2000:

As of December 31, 2000, management deemed the decline in the fair value of
the Company's investment in Decora Industries Inc. ("Decora") to be "other than
temporary" following Decora's announcement that it had filed for protection
under Chapter 11 of the U.S. Bankruptcy Code. In connection with this
impairment, the Company recognized an additional loss on the investment during
the first quarter of 2001 of approximately $764,000 resulting in a remaining
book value of approximately $509,000. During September 2001, the Company sold
its investment in Decora for approximately $2,000 resulting in an additional
realized loss of $507,000. The realized capital loss on sale of this investment
will be carried back to the fiscal 1998 tax return resulting in a benefit of
approximately $3.5 million.

As of June 30, 2001, management deemed the decline in the fair value of the
Company's investment in Pueblo Xtra, Inc. ("Pueblo") to be "other than
temporary" based on adverse financial trends and intense competitive pressures
on Pueblo. In connection with this impairment, the Company recognized a loss on
the investment of approximately $8.6 million resulting in a remaining book value
of approximately $4.0 million. During September 2001, the Company sold its
investment in Pueblo for approximately $3.6 million resulting

37

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in an additional impairment charge of $381,000. The realized capital loss on
sale of this investment will be carried back to the fiscal 1998 tax return
resulting in a benefit of approximately $2.6 million.

As of March 31, 2001, management deemed the decline in the fair value of
the Company's investment in Franks Nursery & Crafts, Inc. ("Franks" or "Franks
Nursery") to be "other than temporary" following Franks Nursery's announcement
that it had filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
In connection with this impairment, during the first quarter of 2001, the
Company recognized a loss on the investment of approximately $153,000 resulting
in a remaining book value of approximately $220,000. During September 2001, the
Company sold its investment in Franks for approximately $190,000 resulting in an
additional realized loss of $30,000. The realized capital loss on sale of this
investment will be carried back to the fiscal 1998 tax return resulting in a
benefit of approximately $50,000.

During June 2001, the Company entered into an agreement to sell its
investment in Newcor, Inc. This transaction was settled in July 2001. In
connection with this sale, the Company recognized a loss of approximately $1.3
million during the quarter ended June 30, 2001 to write this investment down to
market value. The realized capital loss on sale of this investment will be
carried back to the fiscal 1998 tax return resulting in a benefit of
approximately $455,000.

In July 2000, the Company purchased participation interests in the bank
debt of Davel Communications, Inc. and Davel Financing, LLC ("Davel"). Davel's
bank debt consisted of a $245 million facility, including a $110 million tranche
A term loan, a $93.8 million tranche B term loan and a $45 million revolving
credit facility. The Company's participation interest consisted of an
approximately 12.4% interest in the tranche A term loan, a 6.3% interest in the
tranche B term loan and a 12.4% interest in the revolving credit facility. The
Company paid or committed a total of approximately $5.2 million for its
participation interest in the Davel bank debt. On February 6, 2001 the Company
entered into an agreement to sell its interest in Davel for approximately $1.6
million. This transaction closed during the second quarter of 2001 resulting in
a capital loss of approximately $3.8 million. Approximately $3.7 million of this
amount was recognized in the fourth quarter of 2000 upon the Company's agreement
to sell this investment. The realized capital loss on sale of this investment
will be carried back to the 1998 tax return resulting in a benefit of
approximately $1.3 million.

NOTE 9. UNCONSOLIDATED AFFILIATES

Pursuant to the asset purchase agreement between Charged Productions and
Charged LLC, Charged Productions accounts for its investment in Charged LLC
under the cost method as it does not exercise significant influence over the
operations of Charged LLC. Further, as Charged Productions is unsure of Charged
LLC's ability to generate positive cash flows from its operations, the
investment was written down to zero during the second quarter of 2001.

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 owned
approximately 38% of the outstanding shares of Viskase common stock. During the
quarter ended September 1998, Viskase incurred a net loss of approximately
$119.6 million. Accordingly, since Zapata did not guarantee any obligations and
was not committed to provide any financial support to Viskase, Zapata only
recorded its equity in Viskase's losses to the extent that they reduced Zapata's
net investment in Viskase to zero. During September 2001, Zapata sold its
5,877,304 shares of common stock for an aggregate price of approximately $59,000
in a private transaction through a broker

At December 31, 2000, the fair value of Zapata's investment in Viskase was
approximately $6.3 million based on the closing price of Viskase on that day.

38

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10. DEBT

At December 31, 2001 and 2000, the Company's long-term debt consisted of
the following:

At December 31, 2001 and 2000, the estimated fair value of debt obligations
approximated book value.

On December 22, 1999, Omega Protein closed on its Fiscal 1999 Title XI
application and received $5.6 million of Title XI borrowings for qualified Title
XI projects. Originally, Omega was authorized to receive up to $20.6 million in
loans under the Title XI program and has used the entire amount authorized under
such program. The Title XI loans are secured by liens on certain of Omega's
fishing vessels and mortgages on the Reedville, Virginia and Abbeville,
Louisiana plants. Loans are now available under similar terms pursuant to the
Title XI program without intervening lenders. On November 6, 2001, Omega closed
on its application for an additional loan of $1.9 million under the new program
for qualified projects.

On December 20, 2000, Omega entered into a three-year $20.0 million
revolving credit agreement with Bank of America, N.A. (the "Credit Facility").
Borrowings under this facility may be used for working capital and capital
expenditures. The Credit Facility shall bear interest at a rate equal to (i)
LIBOR plus 250 basis points or (ii) at the Borrower's option, the Bank's prime
rate. The Credit Facility requires a per annum commitment fee of one-half of one
percent (0.5%) on the daily average unused portion of the commitment of the
Lender. The Credit Facility is collateralized by all of Omega's trade
receivables, inventory and equipment. Omega and its subsidiaries are required to
comply with certain financial covenants, including maintenance of a minimum
tangible net worth and minimum EBITDA. In addition, the Credit Facility does not
allow for the payment for cash dividends or stock repurchases and also limits
capital expenditures and investments. Omega is in compliance with the Credit
Facility covenants at December 31, 2001. As of December 31, 2001, Omega had no
borrowings outstanding under the Credit Facility. The Credit Facility expires on
December 20, 2003.

At December 31, 2001 and 2000, Omega had outstanding letters of credit
totaling approximately $1.9 million and $400,000 thousand, respectively, issued
primarily in support of workers' compensation insurance programs.

39

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The annual maturities of long-term debt for the five years ending December
31, 2006 are as follows (in thousands):

2002........................................................ 1,296
2003........................................................ 1,271
2004........................................................ 1,355
2005........................................................ 1,436
2006........................................................ 1,526
Thereafter.................................................. 9,922
-------
$16,806
=======

NOTE 11. EARNINGS PER SHARE INFORMATION

The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings (loss) per share computations:

Basic EPS was computed by dividing reported earnings (loss) available to
common stockholders by the weighted average common shares outstanding during the
year. Options to purchase 122,221 common shares at

40

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

a weighted average price of $46.97 per share were outstanding for the year
ending December 31, 2001, but were not included in the computation of diluted
EPS since the exercise price of the options was greater than the average market
price of the common shares for the period. Options to purchase 122,351 and
123,417 common shares at a weighted average price of 46.72 and 47.05 were
outstanding for the year ended December 31, 2000 and 1999, respectively, and
were not included in the diluted EPS calculation as the effect would be
antidilutive due to the net loss.

NOTE 12. PREFERRED, PREFERENCE AND COMMON STOCK

PREFERRED STOCK

At December 31, 2001 and 2000, Zapata had authorized 200,000 shares of
preferred stock issuable in one or more series.

PREFERENCE STOCK

The Company has authorized 1,800,000 shares of preference stock issuable in
one or more series.

COMMON STOCK

At December 31, 2001 and 2000, Zapata had authorized 16,500,000 shares of
common stock, of which 3,069,859 and 3,066,718 shares were issued and 2,390,849
and 2,388,708 shares were outstanding, respectively.

On January 30, 2001, the Company effected a one-for-ten reverse split of
its outstanding shares of common stock resulting in there then being
approximately 2.4 million common shares outstanding. In addition, the Company's
authorized shares were reduced to approximately 16.5 million common shares,
200,000 preferred shares and 1.8 million preference shares. The preferred stock
and preference shares are undesignated "blank check" shares. All share and per
share amounts have been retroactively restated for the reverse split.

On April 13, 1999, the Company's stockholders approved the re-incorporation
of the Company as a Nevada corporation and a related Agreement and Plan of
Merger. On April 30, 1999, the Company effected the merger by merging into a
wholly-owned Nevada subsidiary. In connection with the re-incorporation, the par
value of the Company's common stock was changed from $.25 per share to $.01 per
share. The change in the par value was effectuated by a reclassification between
the common stock, at par value and capital in excess of par, respectively, on
the balance sheet.

On July 6, 1998, Zapata's Board of Directors approved a stock repurchase
program whereby Zapata may repurchase up to 500,000 additional shares of its own
outstanding common stock from time to time. No time limit has been placed on the
duration of the program and no minimum number or value of shares to be
repurchased has been fixed. Subject to applicable securities laws, shares may be
repurchased from time to time in the open market or private transactions.
Purchases are subject to availability of shares at prices deemed appropriate by
the Zapata's management and other corporate considerations. Repurchased shares
will be held as treasury shares available for general corporate purposes. To
date, Zapata has not made any repurchases under this program. Zapata reserves
the right to discontinue the repurchase program at any time.

41

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13. ACCRUED LIABILITIES

Accrued liabilities as of December 31, 2001 and 2000 are summarized as
follows:

NOTE 14. INCOME TAXES

The Company utilizes the liability method to account for income taxes. This
method requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of existing temporary differences between the
financial reporting and tax reporting base of assets and liabilities, and
operating loss and tax credit carry-forwards for tax purposes. Due to the
implementation of the quasi-reorganization as of October 1, 1990, the Company
was required to adjust capital in excess of par value for the recognition of
deductible temporary differences and credit carry-forward items which existed at
the date of the quasi-reorganization.

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

The last remaining portion of investment tax credits, approximately
$851,000, expired on September 30, 2001. Zapata and Omega Protein have
approximately $6.6 million and $1.2 million, respectively, of alternative
minimum tax credits. These credits, are carried forward indefinitely and do not
expire. As a result of a prior change of ownership Zapata's use of approximately
$6.3 million of its alternative minimum tax credits will be limited to a maximum
of approximately $1.5 million per year.

42

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table reconciles the income tax provisions for all periods
computed using the U.S. statutory rate of 35% to the provisions from continuing
operations as reflected in the financial statements:

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

43

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Because of the expiration of the investment tax credits, the deferred tax
asset of $851,000 and its related valuation allowances were eliminated. Also, in
prior years the Company recorded deferred tax assets related to the decreased
value of its investments. Valuation allowances were recorded to fully offset
these deferred tax assets. These investments were sold prior to September 30,
2001. As a result, Zapata will realize a tax benefit from a capital loss
carryback. Accordingly, the valuation allowances associated with these assets
were reversed and much of the benefit is recognized in 2001.

The Company believes it is more likely than not that its net deferred tax
assets as of December 31, 2001 will be realized. Accordingly, no valuation
allowances have been established to offset any deferred tax assets. The ultimate
realization of deferred tax assets could be negatively impacted by market
conditions and other variables not known or anticipated at this time.

NOTE 15. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES PAYABLE

Future minimum payments under non-cancelable operating lease obligations
aggregate $2.4 million, and for the five years ending December 31, 2006 are (in
thousands):

2002........................................................ $837
2003........................................................ 573
2004........................................................ 519
2005........................................................ 458
2006........................................................ 56

Rental expenses for operating leases were $923, $1,045, and $971 in 2001,
2000, and 1999, respectively.

LITIGATION

On April 30, 1999, a State District Court in Houston, Texas entered
judgment against Zapata in a lawsuit brought by a former employee which was
commenced on April 1, 1998. The former employee claimed that he was entitled to
the value of options for approximately 240,000 shares (24,000 shares subsequent
to the reverse stock split) 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
pre-judgment interest. Zapata then appealed, and on March 15, 2001, the Court of
Appeals for the 14th District at Houston issued an opinion reversing the jury
verdict in favor of the former employee and rendering judgment in favor of
Zapata. On January 10, 2002, the Texas Supreme Court denied the former
employee's petition for review.

A non-operating wholly-owned subsidiary of Zapata, Energy Industries, Inc.,
was named as a defendant in three cases commenced in 1996 and 1997 pending in
the 83rd Judicial District Court of Upton County, Texas involving the death of
one individual and personal injuries to two others. The cases resulted from an
explosion and fire at a gas processing plant in Upton County caused by the
failure of a valve cover. Zapata was named as a defendant in one of the cases.
The owners of the plant have also filed a cross-claim against Energy Industries
for property damage and lost profits resulting from the explosion and fire.
Plaintiffs and the cross-plaintiff owners base their claim on a theory of
manufacturing or design defect of the valve cover. Plaintiffs seek compensatory
damages. Zapata and Energy Industries deny liability in each of the lawsuits,
and have vigorously contested these matters and intend to vigorously defend
against these actions. In January 2002, Zapata's primary insurance carrier for
these lawsuits, for the first time, notified it that it did not believe that
Zapata and Energy Industries had primary insurance coverage for the losses
arising out of these incidents. The insurance carrier had been providing for the
defense of these actions and had not reserved its rights with respect to that
defense. The insurance carrier has not yet discontinued providing for the
defense of these

44

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

actions or formally reserved its rights with respect to that defense or formally
indicated that it would not provide coverage for any loss arising out of these
lawsuits. Zapata has disputed these assertions that there is no primary
insurance coverage. A loss of primary insurance coverage could jeopardize excess
coverage that Zapata or Energy Industries has for these claims. These cases
involve plaintiffs with very serious injuries, including death. While the
results of any ultimate resolution of these lawsuits cannot be predicted, in the
opinion of the Company's management, based upon discussions with defense
counsel, any losses resulting from these matters will not have a material
adverse effect on Zapata's results of operations, cash flow or financial
position.

Zapata is involved in litigation relating to claims arising out of its past
and current operations in the normal course of business. Zapata maintains
insurance coverage against such potential ordinary course claims in an amount in
which it believes to be adequate. While the results of any ultimate resolution
cannot be predicted, in the opinion of Zapata's management, based upon
discussions with counsel, any losses resulting from these matters will not have
a material adverse effect on Zapata's results of operations, cash flow or
financial position.

ENVIRONMENTAL MATTERS

The Company 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 effect on the results of operations,
cash flows or financial position of the Company.

NOTE 16. BENEFIT PLANS

QUALIFIED DEFINED BENEFIT PLANS

Zapata has two noncontributory defined benefit pension plans covering
certain U.S. employees. Omega Protein has one noncontributory defined benefit
pension plan. For all Plans, benefits are generally based on employees' years of
service and compensation level. All of the costs of these plans are borne by
Zapata and Omega. The plans have adopted an excess benefit formula integrated
with covered compensation. Participants are 100% vested in the accrued benefit
after five years of service. The following represents a presentation of
consolidated data for the Zapata and Omega Protein Pension Plans.

Components of consolidated net periodic benefit cost:

45

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's funding policy is to make contributions as required by
applicable regulations. No contributions to the plans have been required since
1984. The plans' funded status and amounts recognized in the Company's balance
sheet at December 31, 2001 and 2000 are presented below:

46

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The unrecognized transition asset at October 1, 1987 was $10.6 million,
which is being amortized over 15 years. Pension plan assets are invested in
cash, common and preferred stocks, short-term investments and insurance
contracts.

SUPPLEMENTAL RETIREMENT PLAN

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

No contributions to the plan have been required. For 2001 and 2000, the
actuarial present value of the projected benefit obligation was based on a 6.75%
and 7.5% discount rate, respectively. The plan's funded status and amounts
recognized in the Company's balance sheet at December 31, 2001 and 2000 are
presented below:

47

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company is subject to the additional minimum liability requirements of
SFAS No. 87 which requires the recognition of an additional pension liability in
the amount of the Company's unfunded accumulated benefit obligation in excess of
accrued pension cost with an equal amount to be recognized net of the associated
tax benefits in accumulated other comprehensive loss. Based upon plan actuarial
and asset information, the Company recorded an additional pension liability of
$6.3 million (including $6.1 million attributable to Omega Protein) and $153,000
(including $0 attributable to Omega Protein) in 2001 and 2000 respectively.
Amounts listed as minimum pension liability adjustments under the caption
"Comprehensive (Loss) Income" on the Consolidated Statement of Stockholders'
Equity represent the net change in the portion of the additional pension
liability recorded under accumulated other Consolidated Balance Sheets.

QUALIFIED DEFINED CONTRIBUTION PLAN

Effective May 31, 2001, the Company established the Zapata 401(k) Plan (the
"Zapata 401(k) Plan") and simultaneously revoked its participation in the Omega
Protein 401(k) Retirement and Savings Plan, (the "Profit Sharing Plan"). All
amounts held by the Profit Sharing Plan on behalf of current and former
employees of the Company were transferred to the Zapata 401(k) Plan.
Participants may defer up to 12% of their compensation for the year, subject to
limitations of the Zapata 401(k) Plan. The Company makes a discretionary
matching contribution of 100% of the employee's contribution up to 3% of
eligible compensation and 50% of the employee's contribution between 3% and 5%
of eligible compensation. Employer contributions are discretionary. The
Company's contribution to the Zapata 401(k) Plan totaled $18,054 in 2001. The
Company's contribution to the Profit Sharing Plan totaled $0, $13,736, and
$29,870 in 2001, 2000, and 1999, respectively.

48

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 17. STOCK OPTION PLANS

Zapata's Amended and Restated Special Incentive Plan (the "1987 Plan")
provides for the granting of stock options and the awarding of restricted stock.
Under the 1987 Plan, options may be granted at prices equivalent to the market
value of the common stock at the date of grant. Options become exercisable on
dates as determined by the Zapata Board of Director's Compensation Committee,
provided that the earliest such date cannot occur before six months after the
date of grant. Unexercised options will expire on varying dates, up to a maximum
of ten years from the date of grant. The awards of restricted stock have a
restriction period of not less than six months and not more than five years. The
1987 Plan provided for the issuance of up to 60,000 shares of the common stock.
During 1992, the stockholders approved an amendment to the 1987 Plan that
provides for the automatic grant of a nonqualified stock option to directors of
Zapata who are not employees of Zapata or any subsidiary of Zapata. At December
31, 2001, stock options covering a total of 3,333 stock options had been
exercised. No shares of common stock are available for future stock options or
other awards under the Plan. As of December 31, 2001, there were 10,667 shares
outstanding under the 1987 plan.

On December 6, 1990, the Company's stockholders approved another stock
option plan (the "1990 Plan"). The 1990 Plan provides for the granting of
nonqualified stock options to key employees of the Company. Under the 1990 Plan,
options may be granted by the Committee at prices equivalent to the market value
of the common stock on the date of grant. Options become exercisable in one or
more installments on such dates as the Committee may determine, provided that
such date cannot occur prior to the expiration of one year of continued
employment with the Company following the date of grant. Unexercised options
will expire on varying dates up to a maximum of ten years from the date of
grant. The 1990 Plan provides for the issuance of options to purchase up to
100,000 shares of common stock. At December 31, 2001, a total of 96,734 stock
options had been exercised and a total of 3,267 shares of common stock were
reserved for stock options outstanding under the 1990 Plan. Accordingly, the
1996 Plan became the Zapata Amended and Restated 1996 Long-Term Incentive Plan
(the "Amended 1996 Plan"). As of December 31, 2001, no shares were outstanding
under the 1990 plan and no shares were available for future stock options or
other awards under the Plan.

On December 5, 1996, the Company's stockholders approved a new stock option
plan (the "1996 Plan"). The 1996 Plan provides for the granting of nonqualified
stock options to key employees of the Company. Under the 1996 Plan, options may
be granted by the Committee at prices equivalent to the market value of the
common stock on the date of grant. Options become exercisable in one or more
installments on such dates as the Committee may determine. Unexercised options
will expire on varying dates up to a maximum of ten years from the date of
grant. The 1996 Plan provides for the issuance of options to purchase up to
500,000 shares of common stock. During 1999, the stockholders approved an
amendment to the 1996 Plan which increased the number of shares available for
options granted under the plan to 1,000,000 shares. At December 31, 2001, stock
options covering a total of 104,100 shares had been exercised and a total of
764,666 shares of common stock are available for future stock options or other
awards under the Plan. As of December 31, 2001 there were 131,234 shares
outstanding under the 1996 plan.

Under the 1987 Plan, the 1990 Plan and the Amended 1996 Plan (the "Plans"),
the Company is authorized to issue shares of common stock pursuant to "Awards"
granted in various forms, including incentive stock options (intended to qualify
under Section 422 of the Internal Revenue Code of 1986, as amended),
non-qualified stock options and other similar stock-based awards.

The Company granted options under the 1996 Plan in 2001, 2000 and 1999 that
have contractual terms of 10 years. All of the options granted to the employees
and directors have an exercise price equal to the fair market value of the stock
at grant date. The options granted in 2001, 2000 and 1999 vest ratably over
three years beginning on the first anniversary of the date of grant.

49

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the status of the Company's stock options is presented below:

Options outstanding and exercisable as of December 31, 2001 are summarized
below:

The Company applies APB Opinion 25 and related Interpretations in
accounting for stock options. In 1995, the FASB issued SFAS 123, which, if fully
adopted by the Company, would change the methods the Company applies in
recognizing the cost for stock options. Adoption of the cost recognition
provisions of SFAS 123 is optional and the Company has decided not to elect
these provisions of SFAS 123. However, pro forma disclosures as if the Company
adopted the cost recognition provisions of SFAS 123 are presented below (amounts
in thousands, except per share amounts):

Consolidated pro forma amounts include Zapata's expense combined with
Zapata's share of the expense from Omega and Zap.Com. For the years ended
December 31, 2001, 2000 and 1999, Zapata's share of Omega's expense was $1.2
million, $4.2 million and $3.6 million, respectively. For the years ended
December 31, 2001, 2000, and 1999, Zapata's share of Zap.Com's expense was
$126,000, $123,000 and $15,000, respectively. The effects of applying SFAS 123
in this pro forma disclosure are not indicative of future charges.

The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for grants in 2001, 2000 and 1999,

50

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

respectively: Expected option terms of three years for all periods; dividend
yield of 0.00% for all periods; risk-free interest rate of 3.50%, 6.27% and
5.05% for 2001, 2000 and 1999 respectively; and volatility of 50.43%, 91.57% and
86.00% for 2001, 2000 and 1999, respectively. The weighted-average grant date
fair value of options granted was $22.20, $19.74 and $54.85 per share for 2001,
2000 and 1999, respectively.

NOTE 18. RELATED PARTY TRANSACTIONS

OMEGA PROTEIN CORPORATION

Upon completion of Omega's initial public offering in 1998, Omega and
Zapata entered into certain agreements that included the Separation, Sublease,
Registration Rights, Tax Indemnity and Administrative Services Agreements. The
Separation Agreement required Omega to repay $33.3 million of indebtedness and
current payables owed by Omega to Zapata contemporaneously with the consummation
of Omega's initial public offering and prohibits Zapata from competing with the
Company for a period of five years. The Sublease Agreement provides for Omega to
lease its principal corporate offices in Houston, Texas from Zapata and provides
Omega with the ability to utilize telephone equipment worth approximately
$21,000 for no additional charge. The Registration Rights Agreement sets forth
the rights and responsibilities of each party concerning certain registration
filings and provides for the sharing of fees and expenses related to such
filings. The Tax Indemnity Agreement requires Omega to be responsible for
federal, state and local income taxes from its operations. The Administrative
Services Agreement allows Omega to provide certain administrative services to
Zapata at Omega's estimated cost. During 2001, 2000 and 1999, fees for these
services under the Administrative Services Agreement totaled $16,000, $13,500
and $97,000, respectively. The Company's management deemed this allocation
method to be reasonable.

ZAP.COM CORPORATION

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 $8.0 million in cash to Zap.Com and forgave $1.0 million in
intercompany debt from Zap.Com pursuant to the completion of the distribution of
Zap.Com's shares to Zapata's stockholders. In addition, two Zapata directors,
Malcolm Glazer (who beneficially owns 47% of Zapata's outstanding common stock)
and Avram Glazer, contributed $1.1 million in cash as payment for 550,000 shares
of Zap.Com common stock.

On October 20, 1999, Zap.Com 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 Zapata's CEO,
Avram Glazer, Zapata's president and Chief Executive Officer. Zap.Com accounted
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 Internet operations, these warrants became fully vested. As a result,
Zap.Com recorded the entire cost of $743,000 for all 2,000,000 warrants at the
then market value of the stock.

NOTE 19. RECENTLY ISSUED 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, and the provisions of SFAS No. 142
are effective for all fiscal years beginning after December 15, 2001. The
51

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company does not believe that the adoption of SFAS No. 141 and 142 will have a
material impact on the Company's financial position or its results of
operations.

The Company adopted the provisions of Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognized in Financial Statements," on January 1, 2001. The
implementation of the provisions of SAB No. 101 did not have an impact on the
Company's financial position or 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.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires that obligations associated with
the retirement of a tangible long-lived asset to be recorded as a liability when
those obligations are incurred, with the amount of the liability initially
measured at fair value. Upon initially recognizing a liability for an asset
retirement obligation, an entity must capitalize the cost by recognizing an
increase in the carrying amount of the related long-lived asset. Over time, the
liability is accreted to its present value each period, and the capitalized cost
is depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. The provisions of SFAS No. 143 will be
required to be adopted by the Company in Fiscal 2003. The Company has not
determined what impact, if any, this statement will have on the Company's
financial position or its results of operations.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses the
accounting model for long-lived assets to be disposed of by sale and resulting
implementation issues. This statement requires that those long-lived assets be
measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations. This
statement is effective for financial statements issued for fiscal years
beginning after December 15, 2001. The Company has not determined what impact,
if any, this statement will have on the Company's financial position or its
results of operations.

NOTE 20. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION

Prior to the sale of the Company's investment in the common stock of
Viskase, the sale of Charged Productions and Zap.Com's discontinuance of its
Internet operations, Zapata primarily operated in two industry segments: the
Food segment, consisting of Omega Protein, and Viskase and the Internet segment,
consisting of Charged Productions and Zap.Com.

Since the sale of Viskase, the food segment information has consisted
exclusively of Omega Protein. Costs incurred during 2001 related to Zap.Com and
Charged Productions were primarily associated with wind-down and reporting
activities. Accordingly, these costs were included within the Company's Internet
segment for 2001. Since Zapata sold Charged Productions to former employees
during 2001, and Zapata expects that Zap.Com's costs for the foreseeable future
will be primarily related to costs associated with being a publicly traded
entity, after December 31, 2001 Zap.com and Charged Productions will not be
included in the Internet segment.

52

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Omega Protein is engaged in menhaden fishing for the production and sale of
fish meal and fish oil. Export sales of fish oil and fish meal were
approximately $35.7 million, $21.7 million, and $38.6 million in 2001, 2000, and
1999, respectively. Such sales were made primarily to European markets. In 2001,
2000, and 1999, sales to one customer were approximately $7.9 million, $6.3
million, and $8.7 million, respectively.

The following table shows the geographical distribution of revenues (in
thousands) based on location of customers:

NOTE 21. QUARTERLY FINANCIAL DATA (UNAUDITED)

SEASONAL AND QUARTERLY RESULTS

Omega Protein's menhaden harvesting and processing business is seasonal in
nature. Omega generally has higher sales during the menhaden harvesting season
(which includes the second and third quarter of each year) due to increased
product availability, but prices during the fishing season tend to be lower than
during the off-season. As a result, Omega's quarterly operating results have
fluctuated in the past and may fluctuate

53

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in the future. In addition, from time to time Omega defers sales of inventory
based on worldwide prices for competing products that affect prices for Omega's
products which may affect comparable period comparisons.

The following table presents certain unaudited consolidated operating
results for each of the Company's preceding eight quarters. The Company believes
that the following information includes all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation in accordance
with generally accepted accounting principles in the United States of America.
The operating results for any interim period are not necessarily indicative of
results for any other period.

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

(1) The Company has restated its results for the quarters ended June 30, 2001
and September 30, 2001 to incorporate certain restatements made by Omega
Protein. Omega revised its results to give effect to the treatment of the
valuation allowance attributable to insurance receivables as a period
expense instead of an inventoriable cost. Additionally, Omega Protein had
previously expensed (in the quarter ended September 30, 2001) abnormal costs
associated with the FAA groundings of Omega's fleet of spotter aircraft as a
result of the September 11, 2001 terrorist attacks. It has subsequently been
determined that such costs should have been treated as inventoriable costs.
The following quarterly information reflects the effects of these changes
for the 2001 quarterly periods impacted:

54

ZAPATA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

55

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 definitive proxy statement relating to
its 2002 Annual Meeting of Stockholders (the "2002 Proxy Statement") to be filed
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), in response to Items 401 and 405 of Regulation S-K under
the Securities Act of 1933, as amended, and the Exchange Act ("Regulation S-K").

ITEM 11. EXECUTIVE COMPENSATION.

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS.

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 Proxy Statement in response to Item 403 of
Regulation S-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

Financial statements, Zapata Corporation.

Report of Independent Accountants.

Consolidated balance sheets as of December 31, 2001 and 2000.

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

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

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

Notes to consolidated financial statements.

EXHIBITS

The exhibit list attached to this report is incorporated herein in its
entirety by reference as if fully set forth herein.
56

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

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

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

57

(b) Current Reports on Form 8-K.

Zapata filed an 8-K on October 5, 2001, announcing the sale of certain
non-investment grade securities.

(c) Consolidated Financial Statement Schedule.

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

58

SIGNATURES

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

ZAPATA CORPORATION
(Registrant)

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

March 28, 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.

59

REPORT OF INDEPENDENT ACCOUNTANTS
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE

To the Board of Directors of Zapata Corporation:

Our audits of the consolidated financial statements referred to in our
report dated March 8, 2002 appearing in this Form 10-K, also included an audit
of the consolidated financial statement schedule listed in Item 14(c) of this
Form 10-K. In our opinion, this consolidated financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.

PRICEWATERHOUSECOOPERS LLP

Rochester, New York
March 8, 2002

60

SCHEDULE II

ZAPATA CORPORATION

VALUATION AND QUALIFYING ACCOUNTS