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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-4219

ZAPATA CORPORATION

(585) 242-2000
(Registrant’s telephone number, including area code)

         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 No

         Number of shares outstanding (less treasury shares) of the Registrant’s Common Stock, par value $0.01 per share, on August 1, 2002: 2,390,849

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ZAPATA CORPORATION

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements and Notes

ZAPATA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)

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

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ZAPATA CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)

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

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ZAPATA CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

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

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ZAPATA CORPORATION
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Operations and Basis of Presentation

The unaudited condensed consolidated financial statements included herein have been prepared by Zapata Corporation (“Zapata” or the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly present such information. All such adjustments are of a normal recurring nature. Although Zapata believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the financial statements and the notes thereto included in Zapata’s 2001 Annual Report on Form 10-K filed with the Securities and Exchange Commission and with the information presented by Omega Protein Corporation on their 2001 Annual Report on Form 10-K. The results of operations for the periods from January 1, 2002 to June 30, 2002 are not necessarily indicative of the results for any subsequent quarter or the entire fiscal year ending December 31, 2002.

Business Description

Zapata Corporation is a holding company which currently operates in the food segment through its 61% owned subsidiary, Omega Protein Corporation (“Omega Protein” or “Omega”), which is the nation’s largest marine protein company. In addition, Zapata holds approximately 98% of the outstanding stock of Zap.Com Corporation (“Zap.Com”), which is currently a public shell corporation.

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.”

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. Short-Term Investments

Short-term investments as of June 30, 2002 and December 31, 2001 are summarized as follows:

Interest rates on these investments ranged from 1.54%—2.80% and 1.83%—2.37% at June 30, 2002 and December 31, 2001, respectively.

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Note 3. Accounts Receivable

Accounts receivable as of June 30, 2002 and December 31, 2001 are summarized as follows:

Note 4. Inventories

Inventories as of June 30, 2002 and December 31, 2001 are summarized as follows:

At June 30, 2002 and December 31, 2001, consolidated inventory consists exclusively of the inventory of Omega Protein. Inventory is stated at the lower of cost or market. Omega’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 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’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, deferred costs (the majority of which are off-season costs) and inventory balances at the end of each quarter based on revised estimates of total inventoriable costs and fish catch. Omega’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 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’s products throughout the fishing season ratably based on Omega’s monthly fish catch and the expected total fish catch for the season.

Note 5. Other Assets

Other assets as of June 30, 2002 and December 31, 2001 are summarized as follows:

Omega Protein’s amortization expense for fishing nets amounted to $257,000 and $475,000 for the quarters ended June 30, 2002 and 2001, 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.

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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 $2.0 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 June 30, 2002, the allowance for doubtful accounts applicable to the HIH receivable was $1.7 million.

On December 27, 2001, Omega entered into a purchase agreement to purchase a 60,000 square foot material storage facility in St. Louis, Missouri, which it had previously leased. 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 and Omega took title to the property in February 2002.

Note 6. Long-Term Investments, Available for Sale

As of June 30, 2002, the Company held available for sale securities with a total cost of approximately $9.0 million, market value of approximately $9.1 million and an unrealized gain of $122,000, which is reflected as a component of other comprehensive income, net of tax. These investment grade securities are obligations of the Federal Home Loan Bank, an agency of the U.S. Government. The Company held no long-term investments as of December 31, 2001.

Note 7. Commitments and Contingencies

Litigation

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 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. Although the insurance carrier has disclaimed any obligation to indemnify Zapata or Energy Industries, it has agreed to continue providing a defense. Zapata has disputed the assertion 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.

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Note 8. Contract Termination Settlement

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

Note 9. Earnings Per Share Information

Basic EPS was computed by dividing reported earnings (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Options to purchase 119,000 common shares at a weighted average price of $46.84 per share were outstanding for the three months and six months ended June 30, 2002 and were excluded from 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 122,000 common shares at a weighted average price of $47.96 were outstanding for the three months and six months ended June 30, 2001, but were not included in the computation of diluted EPS as the effect would be antidilutive due to the net loss.

Note 10. Comprehensive Income (Loss)

The components of other comprehensive income (loss) as of June 30, 2002 and 2001 are as follows:

Note 11. Related Party Transactions

During June of 2002, the Company finalized the terms of a consulting agreement with its former Chairman of the Board of Directors, Malcolm Glazer. Subject to the terms of the agreement, as listed in Exhibit 10(m), Malcolm Glazer shall be paid $122,500 per month effective March 1, 2002 and payable until April 30, 2006. As of June 30, 2002, the Company has accrued $490,000 in accordance with the terms of this agreement.

During the second quarter of 2002, the Company modified the terms of certain outstanding stock options held by Malcolm Glazer and Darcie Glazer. These modifications extended the life of the option subsequent to these former employees termination of employment with the Company. Consistent with FASB Interpretation No. 44, “Accounting for Certain Transactions involving Stock Compensation (an interpretation of APB Opinion No. 25)” the Company recorded a compensation charge of approximately $127,000 during the quarter ended June 30, 2002 to properly reflect the impact of these modifications.

Note 12. Recently Issued Accounting Pronouncements

In June 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Exit or Disposal Activities.” SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the Emerging Issues

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Task Force (“EITF”) has set forth in EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The scope of SFAS No. 146 also includes (1) costs related to terminating a contract that is not a capital lease and (2) termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS No. 146 will be effective for exit or disposal activities that are initiated after December 31, 2002.

In April 2002, the FASB issued SFAS No. 145, which rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” SFAS No. 44, “Accounting for Intangible Assets of Motor Carriers” and SFAS No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements and amends SFAS No. 13, “Accounting for Leases.” This statement updates, clarifies and simplifies existing accounting pronouncements. As a result of rescinding SFAS No. 4 and SFAS No. 64, the criteria in Accounting Principles Bulletin No. 30 will be used to classify gains and losses from extinguishment of debt. This statement is effective for financial statements issued for fiscal years beginning after May 15, 2002. The Company does not expect the adoption of SFAS No. 145 to have a material impact 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’s adoption of the provisions of SFAS No. 144 on January 1, 2002 did not have a material impact on the Company’s financial position or its results of operations.

Note 13. Industry Segment and Geographic Information

Prior to the sale of the Company’s investment in the common stock of Viskase Corporation (“Viskase”), the sale of Charged Productions, Inc. (“Charged”) 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 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 were primarily associated with wind-down and reporting activities. Accordingly, these costs were included within the Company’s Internet segment for 2001. As of January 1, 2002, all activity related to Zap.Com is reported as a separate segment.

The following summarizes certain financial information of each segment for the three months and six months ended June 30, 2002 and 2001:

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking statements in this Form 10-Q, future filings by the Company with the Securities and Exchange Commission (“Commission”), the Company’s press releases and oral statements by authorized officers of the Company are intended to be subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements involve risks and uncertainty, including without limitation those identified from time to time in press releases and other communications with stockholders by the Company and the filings made with the Commission by the Company, Omega Protein Corporation (“Omega Protein” or “Omega”) and Zap.Com Corporation (“Zap.Com”), such as those disclosed under the caption “Significant Factors That Could Affect Future Performance and Forward-Looking Statements” appearing in Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operation” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001 filed with the Commission or elsewhere in this report. The Company believes that forward-looking statements made by it are based on reasonable expectations. However, no assurances can be given that actual results will not differ materially from those contained in such forward-looking statements.

General

Zapata Corporation is a holding company which currently operates in the food segment through its 61% owned subsidiary, Omega Protein Corporation (“Omega Protein” or “Omega”), which is the nation’s largest marine protein company. In addition, Zapata holds approximately 98% of the outstanding stock of Zap.Com Corporation (“Zap.Com”), which is currently a public shell corporation.

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.” On June 17, 2002, Zapata announced that the board of directors authorized management to explore ways to enhance Zapata stockholder value through its holdings in Omega Protein. As of that time, Zapata’s board believed that Omega Protein was undervalued and that Zapata stockholder value may be increased through an appropriate transaction or strategy. The board asked Zapata management to consider increasing Zapata’s ownership position in Omega Protein or in the alternative pursuing a possible sale or another significant strategic transaction involving that interest. Zapata’s cash resources will be decreased to the extent of any purchases and increased to the extent of any sale or similar transaction. There can be no assurance, however, that Zapata will be successful in completing any possible strategic alternatives currently being explored or that the alternative will enhance stockholder value.

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.

Results of Operations

Three Months Ended June 30, 2002 and 2001

Zapata had consolidated net income of approximately $1.2 million or $0.51 per share for the quarter ended June 30, 2002 compared to net loss of approximately $9.9 million or $4.16 per share for the quarter ended June 30, 2001. The net income for the second quarter was primarily due to a profitable quarter reported by Omega Protein. Omega reported net income of $2.9 million for the three months ended June 30, 2002 as compared to a net loss of $527,000 for the quarter ended June 30, 2001.

Revenues. For the three months ended June 30, 2002, Zapata’s consolidated revenues increased approximately 43% from the quarter ended June 30, 2001. The revenue increase was primarily due to higher sales prices of 36% and 57% for Omega Protein Corporation’s fish meal and fish oil, respectively, along with a 29% increase in fish oil

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volume sold. Omega attributes the higher fish meal prices, fish oil prices and fish oil volumes to strong worldwide demand for fish meal and competing oil markets rebounding from historic low levels.

Cost of Revenues. Zapata’s consolidated cost of revenues for the quarter ended June 30, 2002 was $20.3 million, a $3.3 million increase from $17.0 million for the quarter ended June 30, 2001. Cost of sales primarily includes Omega Protein’s direct fishing and processing costs. As a percent of revenues, cost of sales was 75% for the quarter ended June 30, 2002 as compared to 89% for the quarter ended June 30, 2001. The decrease in cost of sales as a percentage of revenues was primarily due to higher sales prices of 36% and 57% for Omega’s fish meal and fish oil, respectively.

Selling, General, and Administrative Expenses. Zapata’s consolidated selling, general and administrative expenses decreased $388,000 or 10% compared to the quarter ended June 30, 2001. This decrease was primarily due to Omega Protein’s $634,000 decrease in the provision for uncollectible insurance accounts receivable, partially offset by Omega’s higher advertising and employee related costs in the current quarter ended June 20, 2002 as compared to the previous quarter ended June 30, 2001.

Interest Income, Net. Interest income decreased by $533,000 for the quarter ended June 30, 2002 as compared to the quarter ended June 30, 2001. The decrease was primarily due to lower interest rates on cash and cash equivalents and short-term investments as compared to the previous quarter.

Realized loss on non-investment grade securities. The Company did not incur any realized losses on non-investment grade securities for the quarter ended June 30, 2002. For the quarter ended June 30, 2001, realized loss on non-investment grade securities was approximately $10.0 million and consisted mainly of the write-down to market value of the non-investment grade debt held in the Company’s available for sale portfolio.

(Provision) benefit for Income Taxes. The Company’s consolidated provision for income taxes was $1.2 million for the quarter ended June 30, 2002 as compared to a benefit of approximately $1.2 million for the quarter ended June 30, 2001. The $2.4 million swing from a provision to a benefit is primarily due to Omega Protein’s generation of income during the current quarter as compared to a loss in the same quarter of the previous period.

Six Months Ended June 30, 2002 and 2001

Zapata had consolidated net income of approximately $2.4 million or $1.02 per share for the six months ended June 30, 2002 compared to net loss of approximately $11.1 million or $4.65 per share for the six months ended June 30, 2001. The net income for this period was primarily due to net income at Omega Protein. Omega reported net income of $5.7 million or $0.23 per share as compared to a net loss of $904,000 or $0.04 per share for the same period of the previous year.

Revenues. For the six months ended June 30, 2002, Zapata’s consolidated revenues increased approximately 33% from the six months ended June 30, 2001. The revenue increase was primarily due to higher sales prices of 18% and 68% for Omega Protein’s fish meal and fish oil, respectively, along with a 16% increase in fish oil volume sold. Omega attributes the higher fish meal prices, fish oil prices and fish oil volumes to strong worldwide demand for fish meal and competing oil markets rebounding from historic low levels.

Cost of Revenues. Zapata’s consolidated cost of revenues for the six months ended June 30, 2002 was $37.3 million, a $2.2 million increase from $35.0 million for the six months ended June 30, 2001. Cost of sales primarily includes Omega Protein’s direct fishing and processing costs. As a percent of revenues, cost of sales was 73% for the six months ended June 30, 2002 as compared to 92% for the six months ended June 30, 2001. The decrease in cost of sales as a percentage of revenues was primarily due to higher sales prices of 18% and 68% for Omega’s fish meal and fish oil, respectively.

Selling, General, and Administrative Expenses. Zapata’s consolidated selling, general and administrative expenses decreased $240,000 or 4% compared to the six months ended June 30, 2001. This decrease resulted from eliminating expenses from Charged Productions, Inc. after the sale of that company in April of 2001, partially offset by Omega’s higher advertising and employee related costs in the current six months ended June 20, 2002 as compared to the previous six months ended June 30, 2001.

Contract Termination Settlement. There were no contract termination settlements in the six months ended June 30, 2002. For the six months ended June 30, 2001, Zap.Com favorably settled disputes over two of its contracts which had been reserved for in the fourth quarter of 2000 in connection with the termination of Internet operations. Accordingly, Zap.Com reversed previous accruals of $403,000 as income resulting from the settlement amounts being less than the associated accrued liabilities.

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Interest Income, Net. Interest income decreased by $1.3 million for the six months ended June 30, 2002 as compared to the six months ended June 30, 2001. The decrease was primarily due to lower interest rates on cash and cash equivalents and short-term investments as compared to the previous six months.

Realized loss on non-investment grade securities. The Company did not incur any realized losses on non-investment grade securities for the six months ended June 30, 2002. For the six months ended June 30, 2001, realized loss on non-investment grade securities was approximately $10.9 million and consisted mainly of the write-down to market value of the non-investment grade debt held in the Company’s available for sale portfolio.

(Provision) benefit for Income Taxes. The Company’s consolidated provision for income taxes was $2.5 million for the six months ended June 30, 2002 as compared to a benefit of approximately $1.4 million for the six months ended June 30, 2001. The $3.9 million swing from a provision to a benefit is primarily due to Omega Protein’s generation of income during the current six month period as compared to a loss in the same six month period of the previous year.

Liquidity and Capital Resources

Prior to Omega Protein’s 1998 initial public offering, Zapata, as the sole stockholder of Omega Protein, moved cash 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 investments and the interest income it earns on its investments. Zapata expects these assets to continue to be a source of liquidity until it effects an acquisition. Zapata’s investments consist of U.S. Government agency securities and cash equivalents. At June 30, 2002, the Company’s consolidated cash, cash equivalents and U.S. Government agency securities were $116.7 million (including $27.1 million attributable to Omega Protein) as compared to $96.4 million (including $21.8 million attributable to Omega Protein) as of December 31, 2001. The increase in Zapata Corporation’s cash, cash equivalents and U.S. Government agency securities was mainly attributable to Zapata’s receipt of a federal income tax refund resulting from losses on the sales of the Company’s non-investment grade securities and its investment in Viskase, combined with increased cash balances at Omega Protein, partially offset by cash paid for Zapata’s corporate operating expenses.

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 June 30, 2002, Zapata had $16.1 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.

The following tables summarizes information about Zapata’s consolidated contractual cash obligations and other commercial commitments (in thousands) as of June 30, 2002 and the effect such obligations are expected to have on its consolidated liquidity and cash flow in future periods:

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