ZAP COM CORP - 10-K Annual Report

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

FORM 10-K

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

For the Fiscal year ended December 31, 2002

or

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 000-27729

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

NEVADA 74-0571159
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

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

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

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) of the Act:

Title of Each Class:
COMMON STOCK, $0.001 PAR VALUE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] or No [ ].

Indicate by "X" whether the registrant is an accelerated filer (as defined
in Exchange Act Rule 12b-2). Yes [ ] No [X]

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. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 30, 2002 (the last business day of the registrant's most
recently completed second fiscal quarter) was $68,755. For the sole purpose of
making this calculation, the term "non-affiliate" has been interpreted to
exclude directors, corporate officers and holders of 10% or more of the
Company's common stock. As of March 14, 2003, the Registrant had outstanding
50,004,474 shares common stock, $0.001 par value.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrant's Definitive Proxy Statement for its 2003 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, 2003,
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 are
described under the caption "Part II -- Item 7 Management Discussion and
Analysis of Financial Condition and Results of Operation-Significant Factors
That Could Affect Future Performance and Forward-Looking Statements" appearing
in this Report and other risks identified from time to time in the Company's
filings with the Securities and Exchange Commission ("SEC"), press releases and
other communications. The Company assumes no obligation to update
forward-looking statements or to update the reasons actual results could differ
from those projected in the forward-looking statements.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

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

Zapata formed Zap.Com for the purpose of creating and operating a global
network of independently owned web sites. In April 1999, Zap.Com announced its
plan to establish the ZapNetwork by connecting web sites through a proprietary
multi-functional, portal-like Internet banner known as the ZapBox. Zap.Com
intended to distribute advertising and e-commerce opportunities over this
network. From its inception on April 2, 1998 through November 12, 1999, Zap.Com
operated as a wholly owned subsidiary of Zapata. In November 1999, Zapata and
two of its directors invested $10.1 million of equity in Zap.Com. On November
12, 1999, Zapata distributed to its stockholders 477,742 shares of Zap.Com
common stock, leaving Zapata as the holder of approximately 98 percent of
Zap.Com's outstanding common stock. On November 30, 1999, Zap.Com's stock began
to trade on NASD's OTC Electronic Bulletin Board under the symbol "ZPCM,"
establishing Zap.Com as a separate public company.

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

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

Since ceasing its Internet operations, the Company has had no existing
business operations, other than to comply with its reporting requirements under
the Securities Exchange Act of 1934. Currently, Zap.Com's principal activities
are exploring methods to enhance stockholder value. Zap.Com is likely to search
for assets

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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.

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

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

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

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

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

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

COMPETITION

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

INTELLECTUAL PROPERTY

Zap.Com owns certain intellectual property rights related to the ZapBox and
the ZapNetwork. Zap.Com also currently has a patent application pending before
the United States Patent and Trademark Office for a business process patent
which is directed to a unique Internet-based commerce method and system
underlying

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the business model. Zap.Com has also filed various applications seeking
registration of its trademarks and service marks in the United States.

REGULATORY MATTERS

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

EMPLOYEES

Since terminating its Internet operations, Zap.Com has 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, will
devote such time to Zap.Com's affairs as is required to perform their duties to
Zap.Com.

ITEM 2. PROPERTIES

Zap.Com's headquarters are located in Rochester, New York, in space
subleased to it by Zapata on a month-to-month basis. Zapata has advised Zap.Com
that it has waived its rights to collect rent until future notice.

ITEM 3. LEGAL PROCEEDINGS

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

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

No matter was submitted to a vote of Zap.Com's stockholders during the
fourth quarter of Fiscal 2002.

PART II

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

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

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

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

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

4

As of March 14, 2003, the closing price reported on the OTC electronic
bulletin board for our common stock was $0.02. As of such date there were
approximately 1500 holders of record of our common stock. This number does not
include the stockholders for whom shares are held in a "nominee" or "street"
name.

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

ITEM 6. SELECTED FINANCIAL DATA

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

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

(2) In November 1999, Zapata and two of its directors invested a total of $10.1
million in Zap.Com as its initial capitalization.

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

FORWARD-LOOKING STATEMENTS

The following discussion of the financial conditions and results of
operations of Zap.Com should be read in conjunction with the financial
statements and notes thereto included elsewhere herein. This discussion

5

contains forward-looking statements which involve risks and uncertainties. The
Company's actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including, but not
limited to, those set forth under "Significant Factors That Could Affect Future
Performance and Forward-Looking Statements."

RESULTS OF OPERATIONS

For the year ended December 31, 2002, Zap.Com recorded a net loss of
$120,000. Since inception (which commenced on April 2, 1998), Zap.Com has
incurred a cumulative net loss of $8.9 million, including $743,000 in non-cash
charges associated with warrants issued to American Internetwork Sports and all
of the costs associated with the development and implementation of the
ZapNetwork, the ZapBox, and the public registration of Zap.Com's common stock.

For the year ended December 31, 2002 as compared to the year ended December
31, 2001, operations consisted of the following:

Revenues. Zap.Com did not generate any significant revenue for years ended
December 31, 2002 and 2001, nor does it presently have any business from which
it may generate revenue in the future.

Cost of revenues. As a result of ceasing all Internet operations, Zap.Com
did not incur any cost of revenues for the years ended December 31, 2002 and
2001.

Sales and marketing. Zap.Com incurred no sales and marketing expenses
during 2002 as compared to $18,000 in the prior year which related to media
relation costs during the termination of the Company's Internet operations.

General and administrative. General and administrative expenses consist
primarily of legal and accounting services, insurance premiums, printing and
filing costs, salaries and wages (including costs allocated by Zapata pursuant
to a services agreement), and various other costs. General and administrative
expenses for the year ended December 31, 2002 were $154,000 as compared to
$713,000 for the year ended December 31, 2000. This decrease primarily relates
to a $447,000 decrease in Directors and Officers Liability Insurance expense in
2002 after the Company's carrier reduced premiums pursuant to the ceasing of
Internet operations. The decrease is also attributable to an $84,000 reduction
in compensation expense in 2002. In 2001, compensation expenses of $96,000
related to salaries during the termination of Internet operations, as compared
to compensation expenses of $12,000 in 2002 related to management fees allocated
by Zapata Corporation.

Loss on disposal of assets. No assets were disposed of during 2002. During
2001, the Company disposed of certain computer equipment no longer needed after
ceasing Internet operations and recognized a loss on the disposal of $24,000.

Contract termination (settlement) expenses. No contract termination
(settlement) expenses were recorded by the Company during 2002. During 2001, the
Company favorably settled its disputes over two of its contracts and reversed
previous accruals of $403,000 as income resulting from the settlement amounts
being less than the associated accrued liabilities. The original expenses and
accruals were recorded during the fourth quarter of 2000 after the Board
resolution to terminate Internet operations. At that time, the Company
determined that certain outstanding contracts had no future value.

Interest income. Interest income is generated on cash reserves which are
invested in short-term U.S. Government Agency securities. Interest earned for
the year ended December 31, 2002 and 2001 was $34,000 and $96,000, respectively.
The decreased interest income for 2002 was primarily a result of sustained lower
interest rates on short-term U.S. Government Agency securities as compared to
rates in 2001, as well as declining cash reserves available for investment.

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

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

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

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

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

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

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

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

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

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

Interest income. Interest income is generated on cash reserves which are
invested in short-term U.S. Government Agency securities. Interest earned for
the year ended December 31, 2001 and 2000 was $96,000

7

and $304,000, respectively. The decreased interest income for 2001 was primarily
a result of significantly lower interest rates on short-term U.S. Government
Agency securities as compared to rates in 2000, as well as declining cash
reserves available for investment.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2002, Zap.Com has not generated any significant revenue
since its inception. As a result, the Company's primary source of liquidity has
been its initial capitalization from Zapata Corporation and two Zapata directors
and thereafter the interest income generated on cash reserves invested in
short-term US Government Agency securities.

Since its inception, the Company has utilized services of the management
and staff and office space of its majority stockholder, Zapata Corporation,
under a shared services agreement that allocated these costs. Effective May 1,
2000, Zapata has waived its rights under the services agreements to be
reimbursed these costs. For 2002, the Company recorded the waived amount as
contributed capital. Should Zapata not renew its waiver, Zap.Com may incur
future cash payments under the shared services agreement.

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

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

CASH FLOWS FROM OPERATING ACTIVITIES

Cash used in operating activities was $103,000 for the year ended December
31, 2002 as compared to $596,000 for the prior year. The decrease in cash used
in operating activities resulted from a reduction in payments made for accounts
payable and accrued liabilities. These payables and liabilities were
attributable to the ceasing of Internet operations and were paid during 2001.

Cash used in operating activities was $596,000 for the year ended December
31, 2001 as compared to $3,937,000 for the previous year. Cash used in operating
activities was greater during 2000 because of the focus on growing the Internet
operations of the Company, before the decision to cease all Internet operations.

CASH FLOWS FROM INVESTING ACTIVITIES

The Company had no cash provided by or used in investing activities for the
years ended December 31, 2002 and 2001 as compared to $836,000 used in the year
ended December 31, 2000. The decrease is a result of the Company incurring no
further capital additions after the December 2000 decision to cease all Internet
operations.

CASH FLOWS FROM FINANCING ACTIVITIES

For the year ended December 31, 2002, the Company had no cash provided by
financing activities as compared to $2,000 for 2001. The decrease in cash flows
from financing activities in the current year represents the elimination of
payments made by Zapata on behalf of Zap.Com as compared to the previous period.

Cash provided by financing activities was $2,000 for the year ended
December 31, 2001, compared to cash used in financing activities of $45,000 for
the prior year. The decrease in cash flows from financing activities represents
the elimination of all intercompany receivables and payables with affiliates.

8

RECENT ACCOUNTING PRONOUNCEMENTS

In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others," which
expands previously issued accounting guidance and disclosure requirements for
certain guarantees. The Interpretation requires an entity to recognize an
initial liability for the fair value of an obligation assumed by issuing a
guarantee. The provision for initial recognition and measurement of the
liability will be applied on a prospective basis to guarantees issued or
modified after December 31, 2002. Zap.Com does not expect this Interpretation to
have a material impact on its financial position or results of operations.

In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure, an amendment of FASB Statement No.
123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation" to provide alternative methods of transition for a voluntary
change to the fair value-based method of accounting for stock-based employee
compensation. It also amends the disclosure provisions of that Statement to
require prominent disclosure about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based employee
compensation. Finally, this Statement amends APB Opinion No. 28, "Interim
Financial Reporting", to require disclosure about those effects in interim
financial information. Although the Company continues to account for stock-based
compensation according to APB 25, the Company has adopted the required
disclosure provisions under SFAS No. 148 at December 31, 2002. As a result of
the Company's continued use of the intrinsic value method of accounting for
stock-based compensation, the transition provisions will not have an effect of
the Company's financial position or results of operations.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of Zap.Com's financial condition and results of
operations are based upon 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. The Company believes that the critical judgments
impacting the financial statements include:

- Valuation allowances for deferred income taxes, and

- Impairment of long-lived assets.

The Company reduces 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. As
a result, the Company recorded a full valuation allowance against the deferred
tax assets for the years ended December 31, 2002 and 2001.

Zap.Com reviews the recoverability of its long-lived assets when events or
changes in circumstances occur that indicate that the carrying value of the
asset may not be recoverable. The assessment of possible impairment is based on
Zap.Com's ability to recover the carrying value of the asset from the expected
future cash flows. If these cash flows are less than the carrying amount of the
asset, an impairment loss is recognized for the difference between estimated
fair value and carrying value. The measurement requires management to estimate
future cash flows and the fair value of long-lived assets. As of December 31,
2001, Zap.Com held approximately $2,000 in long-lived assets.

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

WE HAVE LIMITED ASSETS AND NO SOURCE OF REVENUE.

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

9

produce any material revenues for the Company or its stockholders or that any
such business will operate on a profitable basis.

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

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

ABSENCE OF SUBSTANTIVE DISCLOSURE RELATING TO PROSPECTIVE NEW BUSINESSES.

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

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

Management has had no preliminary contact or discussions regarding, and
there are no present plans, proposals or arrangements to acquire any specific
assets, property or business. Accordingly, it is unclear whether such an
acquisition would take the form of an exchange of capital stock, a merger or an
asset acquisition. However, because the Company has limited resources as of the
date hereof, such acquisition is likely to involve the issuance of stock.

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

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

MANAGEMENT TO DEVOTE INSIGNIFICANT TIME TO ACTIVITIES OF THE COMPANY.

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

10

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

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

THERE IS SIGNIFICANT COMPETITION FOR ACQUISITION CANDIDATES.

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

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

To date, there has been only a limited public market for our common stock.
Our common stock is currently quoted on the Over the Counter Bulletin Board. As
a result, an investor may find it difficult to dispose of, or to obtain accurate
quotations as to the market value of our stock. Upon the filing of this 10-K
containing audited financial statements, our stock will become subject to the
low-priced security or so called "penny stock" rules that impose additional
sales practice requirements on broker-dealers who sell such securities. The
Securities Enforcement and Penny Stock Reform Act of 1990 requires additional
disclosure in connection with any trades involving a stock defined as a penny
stock (generally, according to recent regulations adopted by the U.S. Securities
and Exchange Commission, any equity security that has a market price of less
than $5.00 per share, subject to certain exceptions that we no longer meet). For
example, brokers/dealers selling such securities must, prior to effecting the
transaction, provide their customers with a document that discloses the risks of
investing in such securities. Included in this document are the following:

- the bid and offer price quotes in and for the "penny stock," and the
number of shares to which the quoted prices apply,

- the brokerage firm's compensation for the trade, and

- the compensation received by the brokerage firm's sales person for the
trade.

In addition, the brokerage firm must send the investor:

- a monthly account statement that gives an estimate of the value of each
"penny stock" in the investor's account, and

- a written statement of the investor's financial situation and investment
goals.

If the person purchasing the securities is someone other than an accredited
investor or an established customer of the broker/dealer, the broker/dealer must
also approve the potential customer's account by obtaining information
concerning the customer's financial situation, investment experience and
investment objectives. The broker/dealer must also make a determination whether
the transaction is suitable for the customer and whether the customer has
sufficient knowledge and experience in financial matters to be reasonably
expected to be capable of evaluating the risk of transactions in such
securities. Accordingly, the Commission's rules may limit the number of
potential purchasers of the shares of our common stock.

Resale restrictions on transferring "penny stocks" are sometimes imposed by
some states, which may make transaction in our stock more difficult and may
reduce the value of the investment. Various state

11

securities laws pose restrictions on transferring "penny stocks" and as a
result, investors in our common stock may have the ability to sell their shares
of our common stock impaired.

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

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

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

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

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

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

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

We have paid no dividends on our common stock. We do not anticipate paying
any cash dividends on our common stock in the foreseeable future. Unless we pay
dividends, holders of our common stock will not be able to receive a return on
their shares unless they sell them, which could be difficult unless a more
active market develops in our stock. See Item 5. "Market for the Registrant's
Common Equity and Related Stockholder Matters."

12

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

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

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

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

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

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

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

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

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

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

The warrants issued to American Internetwork Sports became fully vested
after the December 2000 decision to cease operations. See Note 12 to the
Company's Financial Statements included in Item 8 of this report. All of the
shares issued to American Internetwork Sports upon exercise of the warrants will
be available for public resale under Rule 144 following the expiration of a one
year holding period commencing upon the issuance of shares after the exercise of
the warrants and compliance with the other requirements of Rule 144. Further,
Zap.Com is required to register the shares issued upon exercise of the warrants
on a registration statement on Form S-8, upon the demand of American
Internetwork Sports.

We have registered on a shelf basis under the registration statement
30,000,000 shares of our common stock for issuance from time to time in the
future in connection with acquisitions, mergers, other business combinations.
All of the shares issued in connection with these transactions will be freely
tradable. The sale of a substantial amount of these shares into the market could
cause the price of our stock to drop. As a result,

13

these sales also might make it more difficult for us to sell equity or equity
related securities in the future at a time and price that we deem appropriate.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risks relating to Zap.Com's operations result primarily from changes
in interest rates. Zap.Com invests its cash and cash equivalents in short-term
US Government Agency securities with maturities generally not more than 90 days.
Due to the short duration and conservative nature of these instruments, the
Company does not believe that the value of these instruments have a material
exposure to interest rate risk.

14

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholders' equity and cash flows present fairly, in
all material respects, the financial position of Zap.Com Corporation at December
31, 2002 and 2001, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2002 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
February 26, 2003

15

ZAP.COM CORPORATION

BALANCE SHEETS

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

ZAP.COM CORPORATION

STATEMENTS OF OPERATIONS

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

17

ZAP.COM CORPORATION

STATEMENTS OF CASH FLOWS

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

18

ZAP.COM CORPORATION

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

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

ZAP.COM CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 1. BUSINESS AND ORGANIZATION

Zapata Corporation ("Zapata") formed Zap.Com for the purpose of creating
and operating a global network of independently owned web sites. In April 1999,
Zap.Com announced its plan to establish the ZapNetwork by connecting web sites
through a proprietary multi-functional, portal-like Internet banner known as the
ZapBox. Zap.Com intended to distribute advertising and e-commerce opportunities
over this network. From its inception on April 2, 1998 through November 12,
1999, Zap.Com operated as a wholly owned subsidiary of Zapata. In November 1999,
Zapata and two of its directors invested $10.1 million of equity in Zap.Com. On
November 12, 1999, Zapata distributed to its stockholders 477,742 shares of
Zap.Com common stock, leaving Zapata as the holder of approximately 98 percent
of Zap.Com's outstanding common stock. On November 30, 1999, Zap.Com's stock
began to trade on NASD's OTC Electronic Bulletin Board under the symbol "ZPCM,"
establishing Zap.Com as a separate public company.

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

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

Since ceasing its Internet operations, the Company has had no existing
business operations, other than to comply with its reporting requirements under
the Securities Exchange Act of 1934. Currently, Zap.Com's principal activities
are 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.

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

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

General and administrative expenses reflected in the financial statements
include allocations of certain corporate expenses from Zapata for management
services and rent provided under a Shared Services Agreement. Management
believes these allocations were made on a reasonable basis; however, they do not
necessarily equal the costs that would have been or will be incurred by the
Company prospectively. Zapata has waived its rights to receive these
reimbursements since May 1, 2000. For the year ended December 31, 2002, the
Company recorded the waived amounts as contributed capital. See Note 12.

CASH AND CASH EQUIVALENTS

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

20

ZAP.COM CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation of property and
equipment is computed by the straight-line method at rates expected to amortize
the cost of the property and equipment, net of salvage value, over their
estimated useful lives. Estimated useful lives of assets acquired new,
determined as of the date of acquisition are 3-5 years. Replacements and major
improvements are capitalized; maintenance and repairs are charged to expense as
incurred. Upon sale or retirement, the costs and related accumulated
depreciation are eliminated from the accounts. Any resulting gains or losses are
included in the statement of operations.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company accounts for impairments and disposals of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144). SFAS No
144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," but retains the fundamental
provisions of Statement 121 for (a) recognition and measurement of the
impairment of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of by sale. Pursuant to the provisions of SFAS
144, Zap.Com reviews the recoverability of its long-lived assets when events or
changes in circumstances occur that indicate that the carrying value of the
asset may not be recoverable. The assessment of possible impairment is based on
Zap.Com's ability to recover the carrying value of the asset from the expected
future cash flows. If these cash flows are less than the carrying amount of the
asset, an impairment loss is recognized for the difference between estimated
fair value and carrying value. The measurement requires management to estimate
future cash flows and the fair value of long-lived assets.

START-UP COSTS

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

COST OF REVENUES

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

PRODUCT DEVELOPMENT

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

INCOME TAXES

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

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

21

ZAP.COM CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)

STOCK-BASED COMPENSATION

In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and
Disclosure, an amendment of FASB Statement No. 123." SFAS No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation" to provide alternative
methods of transition for a voluntary change to the fair value-based method of
accounting for stock-based employee compensation. It also amends the disclosure
provisions of that Statement to require prominent disclosure about the effects
on reported net income of an entity's accounting policy decisions with respect
to stock-based employee compensation. Finally, this Statement amends APB Opinion
No. 28, "Interim Financial Reporting", to require disclosure about those effects
in interim financial information. Although the Company continues to account for
stock-based compensation according to APB 25, the Company has adopted the
required disclosure provisions under SFAS No. 148 at December 31, 2002. As a
result of the Company's continued use of the intrinsic value method of
accounting for stock-based compensation, the transition provisions will not have
an effect of the Company's financial position or results of operations.

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

USE OF ESTIMATES

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

RECENT ACCOUNTING PRONOUNCEMENTS

In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others," which
expands previously issued accounting guidance and disclosure requirements for
certain guarantees. The Interpretation requires an entity to recognize an
initial liability for the fair value of an obligation assumed by issuing a
guarantee. The provision for initial recognition and measurement of the
liability will be applied on a prospective basis to guarantees issued or
modified after December 31, 2002. Zap.Com does not expect this Interpretation to
have a material impact on its financial position or results of operations.

22

ZAP.COM CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

NOTE 4. STOCKHOLDERS' EQUITY

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

During April 2000, Zap.Com decided to modify the relationship that it had
previously proposed to potential ZapNetwork members. Zap.Com changed the
compensation to ZapNetwork members to revenue sharing payments based on banner
advertising and participation in the ZapNetwork unique user stock bonus plan. On
May 10, 2000 the SEC declared the effectiveness of the post-effective amendment
to the registration statement on Form S-1 that sets forth this new distribution
plan. Zap.Com accounted for the commitment to issue shares and the associated
expense at their fair value as prescribed by the principles of FASB Emerging
Issues Task Force Issue No. 96-18, "Accounting For Equity Instruments That Are
Issued to Other Than Employees For Acquiring, Or In Conjunction With Selling
Goods or Services."

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

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

23

ZAP.COM CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5. INCOME TAXES

As a result of net operating losses, the Company has not recorded a
provision for income taxes. The components of the deferred tax assets and
related valuation allowance at December 31, 2002 and 2001 are as follows:

The Company believes sufficient uncertainty exists regarding the
realizability of the deferred tax assets such that a full valuation allowance is
required. As of December 31, 2002 and 2001, Zap.Com had approximately $7,530,000
and $7,410,000 of net operating loss carryforwards that expire in 2022 and 2021,
respectively. In the event there is a change of control in the ownership of
Zap.Com, as defined by the Internal Revenue Code, the annual utilization of the
net operating losses could be limited.

NOTE 6. LOSS ON DISPOSAL OF ASSETS

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

NOTE 7. IMPAIRMENT OF LONG-LIVED ASSETS

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

NOTE 8. CONTRACT TERMINATION ACCRUAL

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

NOTE 9. STOCK OPTIONS AND STOCK ISSUANCE PLANS

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

24

ZAP.COM CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)

Under the 1999 Plan, 3,000,000 shares of common stock are available for
awards. As of December 31, 2002, there were 2,525,000 shares available for grant
under the plan. The 1999 Plan provides for the grant of any or all of the
following types of awards: stock options, stock appreciation rights, stock
awards, cash awards, or other rights or interests. Allocations of awards are
made by the Board of Directors at its sole discretion within the provisions of
the 1999 Plan. As of December 31, 2002 and 2001, there were no cash awards or
other rights or interest outstanding under the plan.

Stock appreciation rights are rights to receive, without payment to
Zap.Com, cash or shares of common stock with a value determined by reference to
the difference between the exercise or strike price of the stock appreciation
rights and the fair market value or other specified valuation of the shares at
the time of exercise. Stock appreciation rights may be granted in tandem with
stock options or separately. As of December 31, 2002 and 2001, there were no
stock appreciation rights outstanding.

Stock awards may consist of shares of common stock and may provide for
voting rights and dividend equivalent rights. The Company may specify conditions
for awards, including vesting service and performance conditions. Vesting
conditions may include, without limitation, provision for acceleration in the
case of a change-in-control of Zap.Com, vesting conditions and performance
conditions, including, without limitation, performance conditions based on
achievement of specific business objectives, increases in specified indices and
attaining specified growth measures or rates. As of December 31, 2002 and 2001,
there were no stock awards outstanding.

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

The Company has elected to follow the measurement provisions of APB Opinion
No. 25, under which no recognition of compensation expense is required for stock
options granted to employees for which the exercise price equals or exceeds the
fair market value of the stock at the grant date. No options were granted in
2002 or 2001. All of the options granted in 2000 have an exercise price equal to
the fair market value of the stock at the grant date, and therefore have no
associated compensation expense.

The Company has elected to follow the disclosure only provisions of SFAS
No. 123, "Accounting for Stock-based Compensation," as amended by SFAS No. 148,
"Accounting for Stock-Based Compensation -- Transition and Disclosure, an
amendment of FASB Statement No. 123." The Company uses the Black-Scholes option
pricing model with the following weighted-average assumptions for grants in 2000
(excluding options both granted and forfeited in the same period): risk-free
interest rate of 6.58 percent, volatility of 351 percent, expected dividends of
0 percent, and an expected life of three years. The weighted average fair value
of options granted was $8.98 per share for 2000.

25

ZAP.COM CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10. EARNINGS PER SHARE

Basic loss per share is computed by dividing the net loss by the sum of the
weighted average number of shares of common stock outstanding. Diluted earnings
per share is based on the potential dilution that would occur on exercise or
conversion of securities into common stock. For the years ended December 31,
2002, 2001 and 2000, all outstanding stock options were excluded from the
computation of diluted net loss per share because to do so would have an
antidilutive effect.

NOTE 11. COMMITMENTS AND CONTINGENCIES

The Company has applied the disclosure provisions of FASB Interpretation
No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others," to its
agreements containing guarantee or indemnification clauses. These disclosure
provisions expand those required by SFAS No. 5, "Accounting for Contingencies,"
by requiring a guarantor to disclose certain types of guarantees, even if the
likelihood of requiring the guarantor's performance is remote. The following is
a description of arrangements in which the Company is the guarantor.

Zap.Com's articles of incorporation, bylaws and certain other agreements
contain indemnification clauses for its officers and directors for losses
incurred as a result of claims made against such individuals arising out of, or
because of their service to the Company. The maximum potential amount of future
payments the Company could be required to make under these indemnification
agreements is unlimited; however, Zap.Com maintains Director and Officer
Liability insurance that limits this exposure. As a result of this insurance
coverage, it is the opinion of Zap.Com's management that the estimated fair
value of any liabilities under these indemnification agreements is minimal and
should not materially impact the Company's financial position, results of
operations or cash flows. These indemnification obligations were in effect prior
to December 31, 2002 and are therefore grandfathered under the provisions of FIN
No. 45. Accordingly, no liabilities have been recorded for the indemnification
clauses in these agreements.

Related to its 1999 Initial Public Offering, the Company entered into
numerous transactions with third parties and with Zapata. Pursuant to certain of
these transactions, the Company may be obligated to indemnify other parties to
these agreements. These obligations include indemnifications for losses incurred
by such parties arising out of the inaccuracy of representations of information
supplied by the Company in connection with such transactions. These
indemnification obligations were in effect prior to December 31, 2002 and are
therefore grandfathered under the provisions of FIN No. 45. Accordingly, no
liabilities have been recorded for the indemnification clauses in these
agreements.

Management continues to assess agreements for potential impacts under the
provisions of FIN No. 45. While it is not possible to predict the ultimate
outcome of this effort, management does not anticipate that any potential
findings will have a material impact on the Company's financial position,
statements of operations or cash flows.

NOTE 12. RELATED PARTY TRANSACTIONS

Since its inception, the Company has utilized the services of the
management and staff of its majority stockholder, Zapata Corporation, under a
shared services agreement that allocated these costs on a percentage of time
basis. Zap. Com also subleases its office space in Rochester, New York from
Zapata Corporation. Under the sublease agreement, annual rental payments are
allocated on a cost basis. Zapata Corporation has waived its rights under the
shared services agreement to be reimbursed for these expenses since May 1, 2000.
As a result, no allocations were made in years ended December 31, 2001 and 2000.
For the year ended December 31, 2002, the Company recorded approximately $12,000
as contributed capital for services rendered.

26

ZAP.COM CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)

On October 20, 1999, the Company granted to American Internetwork Sports
Company, LLC stock warrants with a five-year term in consideration for sports
related consulting services. American Internetwork Sports is owned by the
siblings of Avram Glazer, the Company's president and Chief Executive Officer.
The Company 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 the operations of the Company, these warrants became fully
vested. As a result, the Company recorded the entire cost of $743,000 for all
2,000,000 warrants at the then market value of the stock.

NOTE 13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

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

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Pursuant to General Instruction G on Form 10-K, the information called for
by Item 10 of Part III of Form 10-K is incorporated by reference to the
information set forth in the Company's Information Statement

27

ZAP.COM CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)

relating to its 2003 Annual Meeting of Stockholders (the "2003 Information
Statement") to be filed pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), in response to Items 401 and 405
of Regulation S-K under the Securities Act of 1933, as amended, and the Exchange
Act ("Regulation S-K").

ITEM 11. EXECUTIVE COMPENSATION

Pursuant to General Instruction G of Form 10-K, the information called for
by Item 11 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 2003 Information Statement in response to Item 402
of Regulation S-K, excluding the material concerning the report on executive
compensation and the performance graph specified by paragraphs (k) and (l) of
such Item.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

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 2003 Information Statement in response to Item 403
of Regulation S-K.

The following table sets forth information as of December 31, 2002, with
respect to compensation plans under which equity securities of the Company are
authorized for issuance:

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 2003 Information Statement in response to Item 404
of Regulation S-K.

ITEM 14. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

An evaluation was performed under the supervision of the Company's
management, including the Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), of the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Securities Exchange Act of
1934 (the "Exchange Act") Rules 13a-14(c) and 15-d-14(c)) within 90 days before
the filing date of this annual report. Based on that evaluation, the Company's
management, including the CEO and CFO, concluded that the Company's disclosure
controls and procedures were effective to ensure that information we are
required to

28

ZAP.COM CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)

disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.

Changes in internal controls

Further, there have been no significant changes in the Company's internal
controls or in other factors that could significantly affect our disclosure
controls subsequent to the evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)LIST OF DOCUMENTS FILED

(1) Financial Statements

Financial statements, Zap.Com Corporation.

Report of Independent Accountants.

Balance sheets as of December 31, 2002 and 2001.

Statements of operations for the years ended December 31, 2002, 2001, and
2000.

Statements of cash flows for the years ended December 31, 2002, 2001, and
2000.

Statements of changes in stockholders' equity for the years ended
December 31, 2002, 2001, and 2000.

Notes to financial statements.

(2) Exhibits

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

29

ZAP.COM CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)

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

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

(b) CURRENT REPORTS ON FORM 8-K

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

(c) FINANCIAL STATEMENT SCHEDULES

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

30

SIGNATURES

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

ZAP.COM CORPORATION (Registrant)

By: /s/ AVRAM GLAZER
------------------------------------
Name: Avram Glazer
Title: President and CEO
Dated: March 24, 2003

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.

31

CERTIFICATION UNDER SECTION 302(a) OF THE
SARBANES-OXLEY ACT OF 2002

I, Avram A. Glazer, certify that:

1. I have reviewed this annual report on Form 10-K of Zap.Com
Corporation;

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;

4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent functions):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

/s/ AVRAM A. GLAZER
--------------------------------------
Avram A. Glazer
Chairman of the Board, President and
CEO

Date: March 24, 2003

32

CERTIFICATION UNDER SECTION 302(a) OF THE
SARBANES-OXLEY ACT OF 2002

I, Leonard DiSalvo, certify that:

1. I have reviewed this annual report on Form 10-K of Zap.Com
Corporation;

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;

4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent functions):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

/s/ LEONARD DISALVO
--------------------------------------
Leonard DiSalvo
Vice President -- Finance and CFO

Date: March 24, 2003

33

SCHEDULE II

ZAP.COM CORPORATION

VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000